Every trader wants to set a record, but the hope is that it will be a record profit rather than a loss. With losses topping out at $7.1 billion, Jerome Kerviel better than tripled the trading losses of rogue trader Nick Leeson – one of the best-known rogue traders before Kerviel came along.

A trader at Societe Generale, Kerviel created these losses by speculating in European futures. Kerviel made multiple short-term bets on the movement of the European market in order to profit when he guessed correctly. Kerviel was able to manipulate the system using knowledge he gained while working in the office that monitored traders. Kerviel increased his bets by fooling the company risk management system to allow him to exceed his credit limits.

The size of Kerviel's trades were said to exceed the market capitalization of the bank. When a person is that highly leveraged, the chances of something going disastrously wrong are high. The mortgage meltdown shook out worldwide markets and accelerated losses in Kerviel's portfolio. On January 18, 2008, SocGen launched an investigation into Kerviel's trading and, upon discovering how dangerously leveraged they were, unwound his positions for a $7.1 billion loss.

Kerviel made no personal profit from his rogue trading. There is even some doubt as to whether or not he was truly a rogue trader because of the sheer size of the trades he was making. Some, including Kerviel himself, allege that SocGen higher ups knew what he was up to, if not how much he was betting, and supported it as long as it was profitable. Either way, it represented a serious oversight at SocGen and affected the bank's share price as angry shareholders sold.

Read about other rogue traders in our article Trading's 6 Biggest Losers.

This question was answered by Andrew Beattie.

  1. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  2. Can mutual funds invest in options and futures?

    Mutual funds invest in not only stocks and fixed-income securities but also options and futures. There exists a separate ... Read Full Answer >>
  3. What is a profit and loss (P&L) statement and why do companies publish them?

    A profit and loss (P&L) statement, or balance sheet, is essentially a snapshot of a company's financial activity for ... Read Full Answer >>
  4. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  5. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>
  6. Do dividends go on the balance sheet?

    The only account recorded on the balance sheet, when dividends are declared and before they are paid out to a company's shareholders, ... Read Full Answer >>
Related Articles
  1. Professionals

    4 Ways Companies Can Relieve Workplace Stress

    Workplace stress can cost companies tons of money in lost productivity and absenteeism. Some of that is out of their control, but often they are the cause.
  2. Professionals

    Career Advice: Accountant Vs. Financial Planner

    Identify the key differences between a career in accounting and financial planning, and learn how your personality dictates which is the better choice for you.
  3. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  4. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  5. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  6. Economics

    Is the U.S. Economy Ready for Liftoff?

    The Fed continues to delay normalizing rates, citing inflation concerns and “global economic and financial developments” in explaining its rationale.
  7. Professionals

    Career Advice: Accountant Vs. Controller

    Learn about the differences between controllers and accountants, how the two are related and which is the best career choice for aspiring bookkeepers.
  8. Professionals

    What is Cash Basis Accounting?

    Cash basis accounting recognizes revenues and expenses at the time cash is paid or received.
  9. Entrepreneurship

    What's a Good Profit Margin for a Mature Business?

    How to determine if the amount you clear dovetails with the competition.
  10. Mutual Funds & ETFs

    The Risks of Investing in Inverse ETFs

    Discover analyses of the risks inherent to inverse exchange-traded funds (ETFs) that investors must understand before considering an investment in this type of ETF.
  1. Encumbrance

    A claim against a property by a party that is not the owner. ...
  2. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  3. Implied Volatility - IV

    The estimated volatility of a security's price.
  4. Plain Vanilla

    The most basic or standard version of a financial instrument, ...
  5. Operating Cost

    Expenses associated with the maintenance and administration of ...
  6. Trade Credit

    An agreement where a customer can purchase goods on account (without ...

You May Also Like

Hot Definitions
  1. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  2. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  3. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  4. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  5. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  6. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!