FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com


Join the forum, it's quick and easy

FINANCIAL CHRONICLE™
Dear Reader,

Registration with the Sri Lanka FINANCIAL CHRONICLE™️ would enable you to enjoy an array of other services such as Member Rankings, User Groups, Own Posts & Profile, Exclusive Research, Live Chat Box etc..

All information contained in this forum is subject to Disclaimer Notice published.


Thank You
FINANCIAL CHRONICLE™️
www.srilankachronicle.com
FINANCIAL CHRONICLE™
Would you like to react to this message? Create an account in a few clicks or log in to continue.
FINANCIAL CHRONICLE™

Encyclopedia of Latest news, reviews, discussions and analysis of stock market and investment opportunities in Sri Lanka

Click Link to get instant AI answers to all business queries.
Click Link to find latest Economic Outlook of Sri Lanka
Click Link to view latest Research and Analysis of the key Sectors and Industries of Sri Lanka
Worried about Paying Taxes? Click Link to find answers to all your Tax related matters
Do you have a legal issues? Find instant answers to all Sri Lanka Legal queries. Click Link
Latest images

Latest topics

» McDonald’s අපේ නෙමෙයි අපේ බෝස්ගේ – අබාන්ස් කියයි
by ChooBoy Today at 10:19 am

» AI Assistance for Stock Market Research and Analysis
by ChatGPT Today at 7:12 am

» Comparative Analysis of the Insurance Sector
by God Father Tue Mar 26, 2024 11:46 pm

» Sri Lanka: Why Pay Exorbitant Taxes?
by ChatGPT Tue Mar 26, 2024 10:52 pm

» LANKA CREDIT AND BUSINESS FINANCE PLC (LCBF.N0000)
by K.R Tue Mar 26, 2024 3:15 pm

» CENTRAL INDUSTRIES PLC (CIND.N0000)
by D.G.Dayaratne Tue Mar 26, 2024 9:11 am

» SIYAPATHA FINANACE PLC (SLFL.N0000)
by ChatGPT Tue Mar 26, 2024 7:58 am

» FINANCE AND LEASING SECTOR
by ChatGPT Mon Mar 25, 2024 6:45 am

» LOLC FINANCE PLC (LOFC.N0000)
by ChatGPT Mon Mar 25, 2024 6:36 am

» CIC HOLDINGS PLC (CIC.N0000)
by ChatGPT Mon Mar 25, 2024 6:18 am

» UNION ASSURANCE PLC (UAL.N0000)
by ChatGPT Mon Mar 25, 2024 6:15 am

» First Capital Holdings PLC: Current Financial performance and future outlook
by God Father Sun Mar 24, 2024 10:58 pm

» LankaBizz: Sri Lanka's First ever Artificially Intelligent (AI) Business and Research Assistant
by God Father Sun Mar 24, 2024 7:27 am

» HOTEL AND TRAVEL SECTOR
by ErangaDS Wed Mar 20, 2024 7:22 am

» CIC Holdings Good Times Ahead
by ashan silva Mon Mar 18, 2024 11:00 am

» EPF Fund keep eye on low P/E Shares
by K.R Mon Mar 18, 2024 8:45 am

» SINS - the Tailwind effects of a crisis hit Economy
by Hawk Eye Mon Mar 18, 2024 8:37 am

» Ceylon cold stores
by Hawk Eye Mon Mar 18, 2024 8:25 am

» Asha securities Provide buy signal for CIC
by ddrperera Fri Mar 15, 2024 1:10 am

» CSE ready for another Downtrend?
by D.G.Dayaratne Thu Mar 14, 2024 11:24 am

» LankaLAW Forum : Sri Lanka’s #1 Discussion Platform for Legal Questions and Answers
by blindhog Thu Mar 14, 2024 9:14 am

» Sri Lanka poised to benefit from demand surge for ‘non-China origin’ graphite
by samaritan Wed Mar 13, 2024 1:31 pm

» LOLC hotels
by Maharaja Tue Mar 12, 2024 2:34 pm

» AEL target price ?
by suku502 Mon Mar 11, 2024 11:26 am

» WAPO 200% UP
by LAMDA Sun Mar 10, 2024 10:33 pm

LISTED COMPANIES

Submit Post
ශ්‍රී ලංකා මූල්‍ය වංශකථාව - සිංහල
Submit Post


CONATCT US


Send your suggestions and comments

* - required fields

Read FINANCIAL CHRONICLE™ Disclaimer



EXPERT CHRONICLE™

ECONOMIC CHRONICLE

GROSS DOMESTIC PRODUCT (GDP)



CHRONICLE™ YouTube

Disclaimer
FINANCIAL CHRONICLE™ Disclaimer

The information contained in this FINANCIAL CHRONICLE™ have been submitted by third parties directly without any verification by us. The information available in this forum is not researched or purported to be complete description of the subject matter referred to herein. We do not under any circumstances whatsoever guarantee the accuracy and completeness information contained herein. FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not in any way be responsible or liable for loss or damage which any person or party may sustain or incur by relying on the contents of this report and acting directly or indirectly in any manner whatsoever. Trading or investing in stocks & commodities is a high risk activity. Any action you choose to take in the markets is totally your own responsibility, FINANCIAL CHRONICLE™ blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental damages or loss arising out of the use of this information. The information on this website is neither an offer to sell nor solicitation to buy any of the securities mentioned herein. The writers may or may not be trading in the securities mentioned.

Further the writers and users shall not induce or attempt to induce another person to trade in securities using this platform (a) by making or publishing any statement or by making any forecast that he knows to be misleading, false or deceptive; (b) by any dishonest concealment of material facts; (c) by the reckless making or publishing, dishonestly or otherwise of any statement or forecast that is misleading, false or deceptive; or (d) by recording or storing in, or by means of, any mechanical, electronic or other device, information that he knows to be false or misleading in a material particular. Any action writers and users take in respect of (a),(b),(c) and (d) above shall be their own responsibility, FINANCIAL CHRONICLE™ its blogs, forums, domains, subdomains and/or its affiliates and/or its web masters, administrators or moderators shall not be liable for any, direct or indirect, consequential or incidental violation of securities laws of any country, damages or loss arising out of the use of this information.


AI Live Chat

You are not connected. Please login or register

The Psychology of the Rogue Trader

3 posters

Go down  Message [Page 1 of 1]

1 The Psychology of the Rogue Trader Empty The Psychology of the Rogue Trader Wed Nov 21, 2012 5:10 pm

Sidath

Sidath
Manager - Equity Analytics
Manager - Equity Analytics

By Laurence Knight Business reporter, BBC News

Why do traders go rogue? Is it just a few bad apples? Or is it driven by the same thing that makes all traders tick? Before I try to answer these questions, I should declare an interest: For six years I worked on the trading floor of an investment bank. I wasn't a trader. But my job involved me interacting with traders on a daily basis. I started by contacting Bruno Curnier. In 2002 he trained me, along with about 200 other fresh-faced graduate recruits, in the basics of financial markets - something he has been doing for well over a decade. "A trader is someone whose focus is on achieving short-term profit," he tells me. "That focus is so potent that sometimes the ends justify the means.

" Profit motive?

I don't think some traders have any clue how to manage people” End Quote Bruno Curnier BD-Consulting co-founder This tallies with my own experience. For many traders, their sense of self-worth is defined almost uniquely by their "P&L" - the profit and loss they make for the bank - and, by implication, the size of their bonus. Making a profitable trade shows that they are right. And the bigger the profit, the more right they are. As for the enormous bonuses (and for many, Adoboli's, at £250,000, was not so enormous), their importance is not so much in the material wealth they bring, so much as the recognition of the trader's status and success. I have known horrendously overpaid traders become very angry when they discovered they were not getting as much as an allegedly less successful colleague. My boss once sent round an article about a monkey test that illustrated the point nicely. Adoboli specifically denied being motivated by personal gain in the form of a bonus, and the jury appear to have believed him. But he does nonetheless seem to have suffered from a fixation on profit above all else, which he claimed was because he felt under pressure to produce results. This fixation seems evident from the confessional email he sent to his risk controller when he realised he could no longer hide his losses. In it, he claimed that he had almost managed to succeed in recouping his losses at one point, before the market turned against him. By that logic, it was as if he were saying he had been unlucky, as if this mitigated the fact that he had been behaving totally irresponsibly.

'Gekko syndrome'
So why do banks recruit these gamblers in the first place? "What I have observed is a big emphasis in banks on technical competence - high cognitive ability or IQ," says Mr Curnier. "When it comes to EQ [Emotional Quotient], my sense is that people are not spending a lot of time focusing on that." Does the "high roller" image of Gordon Gekko attract the wrong kind of candidate?
EQ is a measure of individuals' ability to manage their emotions and their relations with others, developed by psychologist Daniel Goleman. Mr Curnier says many traders suffer from "Gekko syndrome", like the "greed is good" anti-hero of the film Wall Street. They lack self-awareness - the ability to understand their own emotions and how they affect others. The aggressive, risk-taking, boundary-pushing, "high-roller" image of the trader tends to attract exactly that kind of applicant. This self-selection effect can then be reinforced by a recruitment process in which the successful candidates are ultimately picked by the traders they will work for. "I don't think some traders have any clue how to manage people. They recruit people they like - if they see the same drive," says Mr Curnier. Indeed, many traders actively avoid promotion to managerial posts - something that would take them away from the buzz of winning in the market they know and love. And many of the most successful traders end up being paid a lot more than their managers, sometimes even more than the head of their bank.

Aggressive
Of course, not all traders are alike, and Mr Curnier is at pains to point out that he has also met many traders with very high ethical standards. My personal experience is that they come in three main varieties, and the variety depends very much on the type of market they work in. The most stereotypically aggressive are the "flow" traders - people who work in the simplest, most competitive and fast-moving markets, such as currencies or shares. Where I worked, the currency trading desks resembled an arcade. The traders had rigged their computers to blare out noises or tunes every time they bought or sold. Then there were the "quant" traders - those dealing with financial options or complicated transactions know as synthetic CDOs. They were brainy types, who needed to have an intuitive grip on the complex maths involved, and occasionally blew up when they got their maths wrong. Finally, there were the "elephant hunters". These characters might spend months on one big transaction earning millions of dollars in profit. They too were deep thinkers, but their thoughts were turned to negotiating tactics, complex legal documents and accounting issues. They also seemed to be mostly likeable family men.

Testosterone
Nearly all of the traders that I have heard of losing millions or billions (including two minor cases that never became public) fit somewhere between the first two types. They dealt in products that were not too complex (by investment banking standards) and could be traded in large volume.
But their products were complicated enough to create risks that were poorly understood - either by the trader himself, or by the people who were supposed to be overseeing him. Oh, and by the way, I say "him" for a reason. The vast majority of traders are men. At spread-betting firm City Index, the male-to-female ratio of punters is 10:1. The reason is to do with male physiology.
According to research in 2007, traders are more successful when they are high on their own hormones, including adrenalin, cortisol and testosterone. It physically gears them up for battle, making them more persistent and more willing to take risks. Success in trading then leads to higher hormone levels and even more risky behaviour. It becomes a feedback loop, called the "winner effect". The same effect is evident in nature - animals that win fights for alpha male status experience a testosterone rush that makes them even more willing to fight and push their way to the top. It is also well documented among athletes ahead of a game or a race. "What I firmly believe is that financial risk-taking is a profoundly physical act," says John Coates who jointly ran the study and is himself a former bank trader. "It's a bit like an army gearing up for a cavalry charge. If we are doing well, the body tells us: 'Go for it, there's fruit everywhere'." The downside is that it makes the winner stupidly reckless - Mr Coates says that when traders blow up, it typically comes at the end of a long winning streak. And this is what seems to have happened with Adoboli. Having successfully hidden a permissible, albeit embarrassing, $400,000 loss in 2008, Adoboli went on to take bigger and bigger bets, ultimately resulting in a loss 5,000 times bigger in 2011. Away from the bank, he was even taking extra bets with his own money, leading the prosecution to accuse him of being "addicted to gambling". Doubling down
The last piece of the psychological puzzle is the mental trap that a rogue trader finds himself in once the losses start stacking up and he faces an impending deadline at which point the game will be up. It presents him with a classic game of double or quits.
Double or quits
Trader comes clean: Trader doubles bet:
Bet wins: Trader goes to jail; bank's losses are small Trader gets away with it; bank is none the wiser
Bet loses: Trader goes to jail; bank's losses are big Trader goes to jail; bank's losses are enormous

He can either:
1. Confess his losses, or
2. Double his bet in the hope of quickly making back the loss before he is discovered
The problem for the bank is that, beyond a certain point, the trader's losses are in effect capped: He knows that the worst that can happen to him is that he loses his job and faces criminal charges. Meanwhile, the billions in losses will have to be picked up by the bank - although this did not stop Societe Generale successfully (at least on paper) winning damages against Jerome Kerviel for the entire 4.9bn euros he had lost. In the first scenario, the trader's worst case happens with 100% probability, whereas in the second, it is only 50%. Unsurprisingly, he goes for option 2.
If he is really unlucky, he keeps having to double up again and again, until the losses become astronomical. In Adoboli's case, he changed his bet twice, and both times the market changed direction against him. It just makes you wonder how many lucky rogue traders there have been that never came to light.

2 The Psychology of the Rogue Trader Empty Re: The Psychology of the Rogue Trader Sat Nov 24, 2012 1:28 pm

Redbulls

Redbulls
Director - Equity Analytics
Director - Equity Analytics

Thanks mate for sharing.
Greed !!!!!

3 The Psychology of the Rogue Trader Empty Re: The Psychology of the Rogue Trader Sat Nov 24, 2012 3:47 pm

K.Haputantri

K.Haputantri
Co-Admin

Thanks for sharing.

Sponsored content



Back to top  Message [Page 1 of 1]

Permissions in this forum:
You cannot reply to topics in this forum