The Rogue Trader

Essay by chinookCollege, UndergraduateA-, January 2006

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What do traders do? They make investments on behalf of their employers, the banks, and the banks' customers. They watch screens all day, looking for fluctuations in prices, and then try to buy things when they are cheap and sell them when they are expensive. So what they are really trading in is opinions. They are like bookies once removed; they make bets on how other people will bet. Traders, in other words, are pure capitalists; they understand that something is worth exactly what people say it's worth.

A rogue trader is not a crook in the normal sense of the word. He is someone who loses money and, in trying to pretend that he hasn't lost money, loses more. It's like a classic farce. For the trader it feels like being carried away by a hot-air balloon; if they don't jump off immediately, they can't jump off at all.

Most people, finding themselves in this position, would jump off immediately. But rogue traders stay where they are; they try to trade their way out of trouble. As the trades get worse, the cover-ups get more complex. And, ironically, as the losses get bigger, the harder they get to spot, a loss of several hundred million is, in the eyes of a bank executive, much more likely to be a misprint.

One Rogue trader named John Rosnak fell into this category. He had started losing large amounts of money in 1997 by making bad trades on the foreign exchange market. The trades were straightforward; he bought yen in a falling market, and lost money, and then bought more yen, and lost more money. He was the top foreign exchange trader at Allfirst or, rather, he was the senior trader of two; it was a small office. In Baltimore, Rusnak...