Trader Who Lost 830M Pounds - Background
In 1995, Nick Leeson was a trader who lost 830 million pounds through unauthorized trades at one of the oldest merchant banks in Britain, Barings. Leeson deceived everyone around him into believing his fraudulent gains. He was said to have an ability to manipulate others. Even after the company had hired auditors to investigate his division, his true losses were not discovered.
This story was also made into a film starring Ewan McGregor and Anna Friel in the film "Rogue Trader".
Since then, Leeson has bounced back from jail, cancer diagnosis and divorce. He has also become a well regarded author, public speaker, and financial expert. Even CEO of a football team.
Mr. Leeson since joined debt-restructuring firm called GDP Partnership. His job is to help Irish borrowers renegotiate their mortgage debts with banks. His hiring was somewhat based on his past history.
How did it start?
Leeson worked on the Singapore International Monetary Exchange, SIMEX trading futures. He had clerks and other team members executing trades. However, because many of them were newbies, sometimes the wrong trades would be made. Instead of selling a lot of futures, they would be buying futures. It was a highly volatile market in the 1900s and it was not unreasonable to see large swings. These losses began to mount and instead of notifying the parent company, he hid them in a special account. His plan was to trade out of these losses on his own time. However, the market went against him and his losses began to increase. He went from less than a million pounds in losses to 6 million pounds. Leeson did what he shouldn't have done as a trader. He doubled up. Luckily for him he eventually recovered all of his losses.
Doubling up is probably the worst thing you could do as a trader especially if you have no trading plan in place and rely purely on hope.
When did it get out of control?
Leeson decided that he would be able to work the system. Now he was selling futures at a discount to customers and hiding the difference in his special account. From an accounting perspective, it looked like he was making money. But in actuality losses were mounting in then hundreds of thousands pounds. He was seen as a trading star, but he knew that it was all a fraud.
Finally he decided to get hundreds of millions of pounds of the company's money to try and hold up the entire market. If the market moved one or two points he would be up millions of pounds.