Rogue Trader - Bad Boys of Trading

Definition of a Rogue Trader

A rogue trader is the ultimate bad boy of trading.  This trader has reached a point where they no longer care about protecting their client or the company for which they trade.  The trader has fallen into a vicious cycle of reckless trading.  This trader will experience a number of successes but in the end, their lack of proper money management will always lead to disastrous results.

Profile of a Rogue Trader

Contrary to popular belief, a rogue trader does not act out of greed.  The trader no longer cares about the money.  It is about being right and winning in the market at all costs.  Early on, the trader will break one a law setup by the exchange or shortcut an accounting step required by their employer.  Odds are this small break in protocol will lead to a successful trade.  This feeling of being smarter than the market and lawmakers, leads to more poor decisions.  Then it happens, the rogue trader will take a significant loss, which requires some sort of cover-up on the books.  The trader at this point no longer cares about their clients, bonuses or the company.  All the trader wants to do is get the money back that they loss, but they are willing to do any and everything to accomplish this goal.  Herein lies the issue, the trader believes that they are helping their clients, by attempting to get their money back.  But in reality, the trader is placing their clients at more and more risk as a result of their lack of stops, excessive use of margin, and reckless position sizing.

Penalties

The United Kingdom has taken the lead around the world to tackle the issue of rogue traders.  The Consumer Protection Regulations has created 31 types of unfair practices including:

  • Bogus 'closing down' sales
  • Prize draw scams
  • Offering bogus free gifts

Governments have improved their efforts on tracking fradulaent boiler room organizations and are just beginning to treat rogue trading as "real fraud" and are responding with stiffer jail time and fines. 

Famous Rogue Traders

The most recent rogue trader that gained worldwide noteriety is Jerome Kerviel, a French futures trader.  He overleveraged his bank Societe Generale and when all the dust cleared, the bank had loss over 10 billion Euros.  While Kerviel has loss the most money, the most famous rogue trader is Nick Leeson, who brought down Baron's bank with his illegal activity.  His exploits were so well known, it hit the big screen in the movie Rogue Trader.  Leeson is now out of prison and testing his hand again at trading and is currently working for a futbol team in Ireland and as a motivational speaker. 

Nick Leeson Rogue Trader


Tim Ord
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