The 10 Largest Trading Losses In History
Published March 5th, 2008 in Trading Tags: amaranth advisors, barings bank, copper futures, daiwa bank, discipline, equity loss, european index, gas futures, index futures, interest rate derivatives, jerome kerviel, john meriwether, long term capital management, market manipulation, nick leeson, nikkei futures, oil futures, stop loss, sumitomo corporation, trading, trading losses.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.
| Name | Loss $Billion | Institution | Market | Year |
Jérôme Kerviel | $7.1 | Société Générale | European index futures | 2008 |
Brian Hunter
| $6.5 | Amaranth Advisors | Gas futures | 2006 |
John Meriwether
| $4.6 | Long Term Capital Management | Interest rate and equity derivatives | 1998 |
Yasuo Hamanaka
| $2.6 | Sumitomo Corporation | Copper futures | 1996 |
Wolfgang Flöttl and Helmut Elsner
| $2.5 | BAWAG | Currency and interest swaps | 2006 |
Robert Citron
| $1.7 | Orange County | Interest rate derivatives | 1994 |
Nick Leeson
| $1.4 | Barings Bank | Nikkei futures | 1995 |
Heinz Schimmelbusch
| $1.3 | Metallgesellschaft | Oil futures | 1993 |
Toshihide Iguchi
| $1.1 | Daiwa Bank | Bonds | 1995 |
David Lee
| $0.8 | Bank of Montreal | Natural Gas Options | 2007 |
Source: Wikipedia
What lessons do you draw from this?
amaranth advisors, barings bank, copper futures, daiwa bank, discipline, equity loss, european index, gas futures, index futures, interest rate derivatives, jerome kerviel, john meriwether, long term capital management, market manipulation, nick leeson, nikkei futures, oil futures, stop loss, sumitomo corporation, trading, trading losses
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4 Responses to “The 10 Largest Trading Losses In History”
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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.
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.