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Lessons in dodgy dealing

Another impact of the sub-prime meltdown is that trading losses and scandals that would have once had the media in a frenzy now go almost unnoticed. For instance, MF Global’s spot of bother last week in wheat futures ‘only’ resulted in a loss of $150 million.

Closer to our market, I hear of one bank that has managed to sweep under the carpet the fact that its options business was based more on smoke and mirrors than solid modelling and clever trading.

Many people’s eyes roll at the thought of discussing risk management. At its simplest though, it should be little more than common sense. If this is remembered and adhered to, the majority of problems should be avoided.

Years ago, I worked with a trader who was ostensibly far more successful than me. It took me some time to work out why this was, as the evidence suggested he was incapable of trading his way out of a paper bag. What struck me as odd was that all of his winning positions seemed to be put on after hours, when the rest of the dealing room – apart from his trusty sidekick on the sales desk – had gone down to the pub.

When I reported this back to head office, I was told to keep my mouth shut and mind my own business. The bank liked the profit. I’ve heard that another colleague also reported him, but he too was told that it was nothing to do with him.

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