So, who are the rogue traders that have experienced all of this? Here’s a small sample (the ones we know of!). They are not in chronological order but in order of how much money they actually lost their banks (from the lowest to the highest):
1. John Rusnak
The guy that brought down the Allfirst Bank and incurred losses of $69.2 million.
He was sentenced to 7.5 years in prison on January 17th 2003 for hiding the losses that he incurred as a currency trader. He hid the losses for a year. He is now under confinement at his home (since January 2009, meaning that he served almost six years for his rogue trading).
He was ordered to pay back $1, 000 per month after his release from prison and despite the fact that he remains in debt to the full sum of $691.2 million he will probably never be able to pay it back. How did it all happen?
Allfirst Bank wished to make its forex operations go from just hedging to bringing in a yield of profits and thus increase the total profits of the bank.
John Rusnak was hired to do this.
Rusnak was bullish on the Yen. He believed that the Yen would not fall any more after the bursting of the Japanese bubble. He believed that the Yen would rise against the Dollar.
He neglected to hedge his forward contracts believing that the Yen could not fail to rise.
With the onset of the Asian crisis, the Yen fell.
He thus entered false options into the systems to make it seem as if the positions were hedged. He also asked for more money from high brokerage accounts in order to try to win back the money that he had already lost.
The management granted this to him and he invested even more money.
Rusnak made a personal gain of $550, 000 in bonuses plus his salary.
The losses only came to light when the bank asked for capital to be released and they realized that Rusnak had been working in the red all the time.
Rusnak was fired from his position and along with him he brought down 6 senior executives for failing to detect the scam.
One thing is for sure: Rusnak has kept his nose clean since getting out of prison and has managed to fall into relative anonymity. Nobody knows what he’s doing today for work. Continue reading »
“In The Trading Tribe, Ed extends his paradoxical insights about trading and life. ‘We need to experience our feelings. If we resist them, we wind up creating dramas in our lives and in our trading so that we have to experience them.'”
“Everyone knows traders who violate their rules, second guess their systems, give up on winners, stick with losers, and swear they won’t do it again…. Rather than counseling strength, steely discipline, or automation, Ed again turns apparent common sense on its head,. He encourages traders to embrace and celebrate their feelings, especially the ones they are unwilling to feel.”“‘Win or lose, everybody gets what they want from the market. Some people like to lose, so they win by losing money….'”
“Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!
“Thou Shall Not Trade Against the Trend.”
Let volatility work in your favor, not against you.
Emotions can be the enemy of the trader and investor, as fear and greed play an important part of one’s decision making process.
Portfolios heavy with underperforming stocks rarely outperform the stock market!
Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.
When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.
As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole positions, scale out instead.
Never let a profitable trade turn into a loss and never let an initial trading position turn into a long-term one because it is at a loss.
It’s not the ones that you sell that go higher that matters, it’s the ones you don’t sell which go lower, that do.
Don’t think you can consistently buy at the bottom nor sell at the top. This can rarely be consistently done. Continue reading »
In case you were wondering why sterling might be suffering on the back of the Dubai story, Reuters reports on Thursday:
LONDON, Nov 26 (Reuters) – The Dubai government could be forced to hold a firesale of its international real estate if creditors to two of its flagship companies reject proposals to put near-term debt obligations on ice until May 2010.
International property advisers are bracing for a potential slew of instructions to revalue and sell trophy assets owned by Dubai World and its many property-owning units as the emirate struggles to shrink its $59 billion debt pile.
“We do expect the Dubai government to step up efforts to raise capital via real estate sales, and sales of their UK assets in particular,” James Lewis, a member of the Gulf capital markets team at property consultant Knight Frank told Reuters. Lewis said Dubai had a better chance of denting its massive financial liabilities if it raided its group portfolio, which comprises international landmarks such as the Grand Buildings close to London’s Trafalgar Square, the Mandarin Oriental hotel in New York and the Victoria & Albert Waterfront complex in Cape Town, South Africa.
“The simple supply and demand imbalance (in Dubai) is horrific, which begs the question of why you would want to buy commercial and residential property there if you couldn’t be sure of letting it,” Lewis said.