A:

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.

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