example of a trader breaking the rules, but he’s by no means alone. One of the dirty little
secrets of trading floors around the world is that every so often, somebody is caught concealing
a position and is quickly—and quietly—dismissed…. [This] might be shocking for people
unfamiliar with the macho, high-risk, high-reward culture of most trading floors, but consider
this: the only way banks can tell who will turn into a good trader and who won’t is by giving
every youngster it hires a chance to show his mettle. That means allowing even the most
junior traders to take aggressive positions. This leeway is supposed to be matched by
careful controls, but clearly they aren’t foolproof.”11 What is your reaction to this statement
by Mr. Gumble?
When first starting to trade, you need to manage risk and to trade a well defined trading plan with clearly specified entry and exit strategies. You need a detailed risk management plan and a detailed money management plan. No building is built without a plan. Why would you attempt to trade without a detailed trading plan? Often the reason is that novice traders want to believe that a charting program or a trading program in itself will give them unlimited money.
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2. What explanation can there be for the failure of SocGen’s internal control system to detect
Kerviel’s transactions while Eurex detected many suspicious transactions?
Within the framework of this fraud the financial instruments of portfolio (A) were seemingly compensated with the fictitious operations accommodated within portfolio (B) which showed only a very little residual risk. He gave to his fictitious operations some characteristics which limited the opportunities of control. He usurped computing access codes belonging to operators to cancel certain operations. He falsified the documents allowing him to justify his fictitious operations. He made sure that his fictitious operations related to a financial instrument different from those which he had just canceled to avoid control.
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