French Bank Trader Bet Tens of Billions
- Thread starter trader_david
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averaging down is not suitable for future since there is time term related to future.
in most times, it is ok to do averaging down if you limit your risk to your planned level. but if you did not plan it, often you end up caught, and you are broken. why? first you suppose " the market will finally go in your expected direction", that is flawed, for example, you found American Home Morgage (AHM), is in the biggest drop, you bought, then it continued its drop and you bought it again to lower your entry price, keep doing that since you figured out that " the company will finally turn around", but you wrong, AHM filed chapter 11, you broken! second psycholgically, it will become a habit, when you are caught, you ego will force you to fight back with the market, the deeper you are caught, the more likely you will be sturbborn to keep your holding even add more, until last hope gets lost since you figure there is no way you can get out of the hole!
I agree with the above.
Averaging down doesn't teach a trader how to lose.
You get lazy and spoiled so you don't learn from your mistakes.
What averaging down does is hyde bad entries, bad timing, etc simply because more contracts will be thrown into the position.
99% of the times AD works, yet it may take a single trade to deplete your capital.
Sounds suspicious to me also...
The size of the position was massive to produce the 7 Billion in loss. This is especially true when you consider at one point the bank was up on the position and the size needed for that type of loss, 7 Billion $ is about 2 million e-mini es contracts at -70 points each!
From the news releases the bank liquidated the position out of fear of further losses.
This is the worst trade ever imo
I have been a serious gambler and a professional trader this guy was neither. <p>I was gambling at about this guy's age, and the one thing I understood above all others, I did want to play games with my bookie, because there would be consequences that I did not want to even think about. <p>That leads me to the observation that bookies are better and more competent businessmen than bankers.<p>As a professional trader I have a relationship with my broker. I signed a bunch a stuff to open my account which allows my broker to have the ability to screw me over big time. Since the broker has my money, I have yet to figure out a way to screw him even if I wanted to. <p>My bookie and my broker do not allow for games, if they did they would not be in business long. <p>So who got played here? It was the suckers called investors in this French bank. <p>Professional traders use leverage to trade. This guy wasn't using leverage, he was trading on the utter stupidity of those who unknowingly underwrote all of his trades. The story here is not about the trader. It is about the system and the bank that let him slip through the cracks to the tune of 7.5 billion.
What is a world without scapegoats...