Below is an excerpt from the April 2015 edition of GINNED! Magazine about Cotswolds Dry Gin. Every month, Craft Gin Club members receive a bottle of amazing small-batch gins accompanied by GINNED! Magazine which is full of features about the gin, the distillery and loads of fascinating features.

For thirty years before becoming the Founder and CEO of the Cotswolds Distilling Company Ltd., Dan Szor worked in the profitable however passionless world of foreign exchange. Twenty-six of those years he spent with one firm, FX Concepts, once the world’s largest currency hedge fund managing more than $14 billion (£9.4 billion) in assets. 

cotswold gin

Apart from his love of spirits and a desire to move out of forex into a more personally pleasing and passionate endeavor, one reason that the Cotswolds Distillery came to be when it did was that FX Concepts collapsed in October of 2013. By that time, Dan had already started to put together the plans for his distillery, closing on the Cotswolds farmhouses that would house his new project. Not only was this good timing in relation to his former company but it was also good timing in relation to the forex market as a whole, a market that is at the center of the world’s latest banking outrage. 


The downfall of Dan’s company sheds light onto a recent scandal in forex trading, a scandal that appears to be the largest banking scandal to date, dwarfing the Libor interest rate fixing transgressions of 2012 which at the time was referred to as the largest financial scam in history. The forex improprieties, which regulators continue to investigate, has to date resulted in over $4 billion (£2.7 billion) in fines for some of the world’s largest financial institutions, the same banks that caused the financial crisis of 2008 and which were significantly fined in the Libor scandal including large multinational investment banks like JP Morgan and household names such as HSBC and UBS. Although dozens of forex traders have been suspended or sacked from their positions and one trader arrested, experts believe that many more sacks and arrests will follow as the scope of the scam becomes more apparent. 

So what exactly does Dan’s former company have to do with the ongoing forex scandal? Nothing directly, so please continue enjoying your Cotswolds Dry Gin without a bitter taste in your mouth! But the story of FX Concepts’ demise helps to shed light on the causes of this most recent excuse for the general public to mistrust bankers. 

Foreign exchange trader

Like many companies that burn out, FX Concepts experienced a mixture of miscalculations, bad bets and adverse market forces beyond its control. Our focus is on the market forces. 

One of the strategies that forex firms employ to make money on their trades is called the “carry trade” in which traders borrow a currency with a low interest rate and use that liquidity to purchase a currency with a higher interest rate, particularly a currency whose interest rate the trader expects to continue to rise. The problem with this strategy for FX Concepts and indeed any institution dealing in currency trades arose primarily with the financial crisis of 2008, having since continued as virtually all central banks across the world have kept interest rates near zero with some even introducing negative interest rates in order to encourage consumers to borrow, spend and invest as opposed to locking up their funds in a savings account. With all of these rates relatively similar and with central banks showing no signs of reversing their policies, the “carry trade” strategy became nullified. 

The diversification of many financial institutions since the beginning of the financial crisis attests to the importance of this strategy and its growing ineffectiveness in the face of universal near-zero interest rates. Many funds reduced or closed their exposure to currencies with Reuters reporting in December 2013 that whereas at the start of 2008 “currency funds accounted for 11.4 percent of the macro hedge fund universe by assets, by the third quarter of 2013 this had shrunk to just 2.7 percent.” 



So what does all of this have to do with the ongoing forex investigations? Regulatory agencies like the UK’s Financial Conduct Authority and the US’ Commodity Futures Trading Commission have shown that misconduct in forex trading at big banks precedes the financial crisis by a couple of years but that this misconduct accelerated exponentially after the 2008 crisis broke and simultaneously interest rates fell across the world. With one of their key strategies for fair trading defunct, forex traders began to manipulate the market themselves primarily through collusion similar to the Libor scandal. 

Just like gin distillers must watch their timing in order to ensure that their botanicals seep for just the right amount of time to achieve the desired flavour, forex manipulators must also watch their timing to achieve a desired rate. Foreign exchange rates in London, where 41% of the world’s currency trading happens, revolve around the “4pm fix”. At 4pm every day a snapshot of the day’s trading volume is taken resulting in a spot rate and affording investors a benchmark against which to base their next trade decisions. A relatively steady deal flow throughout the day raises no eyebrows and rates stay relatively stable. But if a bunch of trades happen all at once then investors think something is up, will react accordingly and the rate will fluctuate. 

In the case of the forex scandal, since 2008 traders have almost daily inundated the market with trades within 30 seconds of the 4pm fix, trades which were preconceived with their colleagues at other banks based on sharing confidential information with fellow traders. In one example, RBS needed to push down the sterling/dollar rate to maximize return. In the minute before the 4pm fix it sold £182 million of sterling, more than a third of all trades in the currency pair at that time, a quantity indicating that other banks were passing their “sell sterling” orders through RBS. With the pound weakened against the dollar in a seemingly infinitesimal change from $1.6233 to $1.6218, RBS made $615,000 (£414,000) in profit in that 60 second period. 

That profit might not sound like much in the grand scheme of big bank revenues but when it’s across hundreds of trades on a daily basis it adds up quickly and contributes substantially to the bonuses of the individual traders doing the deals. Additionally, that $615,000 profit for RBS is a loss for somebody somewhere else. The loss in these cases of inflated or deflated spot rates ripple across the world from multinational corporations managing their revenues in different currencies to Mr. and Mrs. John Q. Traveller exchanging money at the airport. The banks were simply getting away with it for so long because their rate manipulations were so minute as to render them virtually invisible to those outside of their direct circles. 


Now that we’ve riled you up by embellishing your existing antipathy to corrupt currency crooks in colourless collars, you’re definitely ready to calm down with a cloudy Cotswolds cocktail. As you sip, remember that your gin comes from the true passion of its founder, a passion that built up after years of it being stifled by working in a passionless industry that once again is attracting the ire of an international audience due to the actions of a few financial fraudsters.