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Trading Basics Forex Futures September Trading Insights

One Rogue Trader, $2 Billion in Losses: Here's the Lesson

Seven years ago, in September 2011, trader Kweku Adoboli lost UBS $2.3 billion in one of the largest rogue trading incidents in history. Adoboli was later convicted of booking fictitious trades in order to cover up for mounting losses. Reports suggest that though UBS authorized his trading desk to have an intra-day risk limit of $100 million, Adoboli's trades carried actual risk that peaked at $12 billion. 

But Adoboli's excessive risk isn't the lesson here. Instead, the real lesson comes from what Adoboli posted on Facebook on September 6, 2011.  

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This is a continuation of our month-long series on how to get better trading every day. For complete access to this series, go to https://blog.topsteptrader.com/topic/september-trading-insights.

On September 6, 2011, the Swiss National Bank stunned forex traders by pledging to value the Swiss Franc at no less than 1.20 per Euro. The Bank would do so by buying unlimited quantities of Euros, pushing the value of its own currency lower. 

It's what Adoboli did next that bears the lesson for traders everywhere.

"Need a miracle."

 Adoboli posted on his Facebook page that he "needed a miracle." It's unlikely that if he posted it publicly, this was the first time that Adoboli thought that. He'd probably been hoping for a miracle to bail him out for months.

But hope is not a trading strategy. Wishing the market to go in your direction will not work out. And if you find yourself in that position (let's be honest, what trader hasn't?), you need to take a step back and gain perspective. Then, close out the trade.

When you are hoping the market goes in your direction, it means a few things:

  1. You don't know where you are wrong. So you didn't follow Bruce Kovner's advice to always know where you are getting out before you get in. 

  2. You are trading way too large. If you can't stand the heat that comes from the position without starting to hope and pray it goes your way, then you need to size down.

  3. You don't realize that you can always get back in. You will have the most perspective about the market when you are completely flat. You can always get back in a trade — even if it has to be at a worse price. 

So, if you ever find yourself hoping or asking for a miracle, do your trading account one favor and close out the trade. Hope is not a trading strategy.

Posted by TopstepTrader on September 06, 2018

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