Billion-dollar mistakes of traders

Thanks to articles about the success of stock traders, it may seem to some of you that trading securities is an extremely simple and profitable business. To dispel such thoughts, today we post an article about the biggest failures of professional traders that led not only to the imprisonment of some of them, but also to the bankruptcy of major companies.

1. Nick Leeson, $ 1.3 billion. The rising trading star, 26-year-old Leeson, was appointed the general manager of the Singapore branch of the oldest British bank Barings in 1992. In just 2 years, the share of his personal transactions on the stock exchange in the company's total profit grew from 10 % to 30 %! The dizzying success and unlimited trust of the bank's management prompted Leeson to recklessly buy Nikkei 225 options that were falling in price at the time. In an effort to reverse the downward trend, he spent huge amounts of money to buy futures for the bank's money, and was very close to succeeding. But on the morning of January 16, 1995, a powerful 7.2 magnitude earthquake occurred in Japan, which destroyed part of the city of Kobe and killed 6.5 thousand residents. The disaster led to the collapse of the Japanese Nikkei 225 index and the bankruptcy of the oldest British Bank that was later resold for just 1 British pound. At the same time, $35 million was found on the trader's personal accounts. The Singapore court sentenced Nick to 6.5 years in prison for manipulating the financial documents and abusing his position in the company.

2. Brian Hunter - $ 6.5 billion. Canadian trader Brian Hunter made $1 billion for the Amaranth Advisors hedge fund in 2005 betting on the future growth of gas futures. A few months later, the hurricanes Katrina and Rita that hit the United States caused serious damage to the gas production infrastructure in the Gulf of Mexico. As a result, gas production fell by more than 5 million cubic meters, triggering an increase in gas prices. The successful deal brought Hunter's hedge fund more than $1 billion, and Brian himself received $113 million in commission. In 2006, the trader hoped to repeat his success, but did not take into account the changes that had occurred in the market: during the previous year, oil companies created gas reserves in case of new disasters, and one of the competitor traders began entering into bear transactions with gas futures. Injecting billions of dollars in an attempt to warm up the market, Hunter crossed a reasonable line and led the hedge fund to a $6.5 billion loss. As a result, Amaranth Advisors lost most of its assets and went bankrupt — an event that went down in history as the largest bust of a hedge fund.

3. John Rusnak, $691 million. While working as a currency trader in the US representative office of Allfirst Bank, John became interested in risky transactions with the Japanese yen and brought multi-million losses to his employer. For five years, he tried to hide the losses and recoup, which aggravated the situation even more. On January 17, 2003, he was sentenced to 7.5 years in prison for hiding the $691 million losses and ordered to pay a reasonable amount of his income every month to pay off the debt.

What is the purpose of this article? To show that every business requires a sober mind and a thorough market analysis.