Rogue Trader

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DEFINITION of 'Rogue Trader'

A trader who acts independently of others - and, typically, recklessly - usually to the detriment of both the clients and the institution that employs him or her. Rogue traders typically trade in high risk investments which can create huge losses but also large gains.

BREAKING DOWN 'Rogue Trader'

One of the most famous rogue traders is Nick Leeson, who was a derivatives trader at the Singapore office of Britain's Barings Bank. Leeson incurred heavy losses through the unauthorized trading of large amounts of Nikkei futures and options. Leeson took large derivative positions on the Nikkei which leveraged the amount of money at stake in the trades.

At one point Leeson had 20,000 futures contracts worth over $3 billion on the Nikkei. A large chunk of the losses came from the downturn in the Nikkei after a major earthquake in Japan caused a broad-based sell-off in the Nikkei within a week. Total loss to the 233-year-old Barings Bank was well over $1 billion and led to its eventual bankruptcy. Leeson was charged with fraud and served several years in a Singapore prison.

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RELATED FAQS
  1. Who set the record loss for "rogue traders"?

    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 ... Read Full Answer >>
  2. How did Peter Young gain infamy as a "rogue trader"?

    Peter Young's notoriety as one of the most memorable rogue traders is not a result of the amount of money he stole, but the ... Read Full Answer >>
  3. How do futures contracts roll over?

    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  4. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
  5. Why do companies enter into futures contracts?

    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
  6. What does a futures contract cost?

    The value of a futures contract is derived from the cash value of the underlying asset. While a futures contract may have ... Read Full Answer >>

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