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What is the definition of a rogue Trader?

A Rogue trader is a person who behaves recklessly and in the absence of other traders, often to the disadvantage of the company that employs the trader , and maybe customers. Rogue traders usually engage in high-risk investment options that could result in enormous profits or losses.

Rogue traders are only identified as such only if they lose and this creates incentives that lead to moral risk. If their trades are incredibly profitable, nobody will call them “rogue” in fact, they’re more likely to earn significant bonuses – however, when they lose on risky bets, they’re considered rogue, and could cause the company millions or trillions in loss.

Rogue traders explained

Over the years, banks have created advanced value-at-risk (VaR) strategies to manage how instruments are tradedwhich desks are able to trade them, at what times they are allowed to trade them and what amount of them can be traded during a specific time. Particularly, the limit of a transaction is established as well as monitored. This is not just to safeguard the bank, but also to ensure that regulators are satisfied. The internal controls However, they aren’t reliable. If a trader is determined, they can be able to bypass the system in order gain huge profits.

Most often, they are uncovered in bad trades and later forced by the regulator to be exposed to the dismay for the institution. It is a mystery what percentage of small-time traders are snubbed by banks because they don’t wish to be a victim of the bad publicity that follows the news that internal controls for trading were not properly designed or implemented.

Some examples of rogue Traders

One of the most well-known of the rogue traders who have been caught in recent times has been Nick Leeson who was an ex-derivatives trader in the Singapore office of the British Barings Bank. in 1995 Leeson suffered huge losses due to the illegal trading of massive quantities in Nikkei the futures market and also options. Leeson was able to take massive derivative positions in the Nikkei which made use of the money that was at stake in the transactions.

At one time, Leeson had 20,000 futures contracts that were worth greater than 3 billion dollars on the Nikkei. The bulk of the losses stemmed due to the downturn in the Nikkei following a devastating earthquake in Japan resulted in a widespread selling-off of the Nikkei within one week. The total loss for Barings Bank, which was founded in 233 years ago Barings Bank was more than $1 billion, which eventually led to the bank’s bankruptcies. Leeson was accused of fraud and was sentenced to many years in an Singapore prison.

Some recent cases have included Bruno Iksil, the “London Whale” who was responsible for $6.2 billion losses between 2012 and JP Morgan, and Jerome Kerviel who was a part or completely accountable to more than $7.5 billion of loss at Societe Generale in 2007. JP Morgan CEO Jaime Dimon was slow to recognize the extent of the “London Whale” losses, at first, he described the situation as “a tempest in teapot.” Then, much to his dismay the CEO had to acknowledge the reality of his bank’s untruthful trader.

James Anderson
James Anderson
I am content writer. I write content about tech gadgets, tech news, tech invention, computer software and hardware sollution as well as smartphones problem I have a youtube channel also and work as video editor.

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