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The 10 Largest Trading Losses In History at Trader’s Narrative

The 10 Largest Trading Losses In History

The Chinese say, May you live in interesting times. This year the market started out the year with a few truly interesting backdrops. Among them a colossal trading loss that shook Société Générale to its core.

Did you know that Jerome Kerviel’s was the largest trading loss in history?

At least so far!

To provide some context about loss, here are the top 10 trading losses ever. At least, it can provide you with some perspective about yours ;-)

Notice how all, except for one, were a result of trading in derivatives? The only equity loss big enough to make it on the board was $0.8 (by Friedhelm Breuers from WestLB, Germany) which ties for the last position.

Lesson? Trading derivatives is like juggling running chainsaws which also happen to be on fire. Unless you know what you’re doing, it will get messy.

Sure, these losses look unreal but each and every one of them started out as a small loss. The only reason why they are up on the board is they were allowed to balloon into grotesque proportions. So it is with the losses of us mere mortals. If we allow our convictions to overrule our discipline, we’re headed towards the same fate.

If anything, such gigantic losses should, for once and for all, put a damper on conspiracy theories of market manipulation. After all, if someone can’t bully a market with a few billion, then the market is indeed bigger than anyone and everyone.

NameLoss $BillionInstitutionMarketYear

Jérôme Kerviel

$7.1Société GénéraleEuropean index futures2008

Brian Hunter

$6.5Amaranth AdvisorsGas futures2006

John Meriwether

$4.6Long Term Capital ManagementInterest rate and equity derivatives1998

Yasuo Hamanaka

$2.6Sumitomo CorporationCopper futures1996

Wolfgang Flöttl and Helmut Elsner

$2.5BAWAGCurrency and interest swaps2006

Robert Citron

$1.7Orange CountyInterest rate derivatives1994

Nick Leeson

$1.4Barings BankNikkei futures1995

Heinz Schimmelbusch

$1.3MetallgesellschaftOil futures1993

Toshihide Iguchi

$1.1Daiwa BankBonds1995

David Lee

$0.8Bank of MontrealNatural Gas Options2007

Source: Wikipedia

What lessons do you draw from this?

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4 Responses to “The 10 Largest Trading Losses In History”  

  1. 1 Scott

    The Jerome K/SocGen affair has yet to fully play out. It’ll be interesting to find out who actually was directly responsible for what losses. Near as I can tell so far from published reports, Jerome K didn’t have a “realized” loss of $7 billion at the time his fraud was discovered (I think he had an unrealized loss of about $1.7 billion Euros, and we know that his trades actually generated a sizable “profit” in 2007). The bulk of that $7 billion loss was apparently “realized” when SocGen secretly had a “star trader” dump the position over the span of a few days, rather than try to “manage” the positions. We know from past scandals that patience, rather than panic selling, might have resulted in a profit (or, at the least, a smaller loss).

    I suspect we’ll get more details when Jerome K’s case goes to court…maybe. I can imagine there are lots of folks who would rather not see those details aired in public.

  2. 2 Courtney Malcarney

    Whenever speaking about derivatives, I think you should clarify between listed derivatives and OTC derivatives. It was OTC derivatives which bankrupted Orange County and brought down LTCM. The normal retail investor has no access to such contracts.

    Listed derivatives are largely safe from default risk (a huge concern in any contract) because of the OCC (Option Clearing Corp). When used properly derivatives can enhance one’s portfolio.

  1. 1 The Smart Money Report » Blog Archive » And you thought YOU’VE had some bad days…
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