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bloke in spainchap in chelseaGrendelSpike Recent comment authors
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Spike
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Spike

A stock investor accumulates assets, perhaps hoping to profit from price fluctuations. A futures trader is gambling. It is not entirely recreation, as Tim notes the social utility of shedding risk, and that it depends on the integrity of the participants. Nothing wrong here except one bad actor. Incidentally, the latest US “stress test” has finished, with the government finding that 30-odd “too big to fail” institutions would survive an economic downturn. Tim often notes that these tests cannot anticipate real-world stresses, and are sometimes designed to output desired findings. Now, why shouldn’t a recession take down one or two… Read more »

Grendel
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Grendel

Unless I’m missing something, this all seems a touch fishy… initial margin at the exchange prevents any overly large positions being opened, and limits losses: Major features of the futures market being that all counterparty risk is with the exchange rather than other market participants, and the position holder’s market risk is limited as positions closed are out automagically as the margin falls. Looks like their only real “mistake” here was the company letting a random rookie investor trade their entire credit line rather than just his own investment – a somewhat courageous trading strategy perhaps, but one that seems… Read more »

chap in chelsea
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chap in chelsea

Speaking as a former futures trader/broker, my reaction to this was to read it… and then read it again slowly in disbelief… surely there is more to this than reported, or all I can say is “what the actual fuck?”… even in Reuters Machine pre-computer days (I do not count that Sinclair with a push-in RAM-pack that fell out if someone thumped the trading desk with a Champagne bottle), we would never have let such a situation develop, not even close. As it happens, the Errors & Omissions Account (in both the New York & London companies I worked for)… Read more »

bloke in spain
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bloke in spain

Like the Chap in Chelsea, it’s a mystery to me. But then so have all the other trading disasters over the years. I’ve run trading books & your job is to know your positions across them. Somewhere in the system you need to have a live bod. Human wetware is infinitely better at things like pattern recognition & extrapolation than any foreseeable assortment of chips. The wetware’s self programming with a full suite of error recognition algorithms. Incidentally, that “random walk” isn’t actually a random walk. It’s a reflection of numerous trades in a market, each individual trade having a… Read more »