What risk management mistakes did this top Norway trader make to blow up his account?

Discussion in 'Risk Management' started by helpme_please, Sep 13, 2018.

  1. He was one of Norway's richest man who got rich through trading. Therefore, his trading record must be very impressive. COnsistent with good gains. Yet, he blew up this week. What risk management mistakes did he make?

    One that I can think of is excessively large position. It has to be excessive since it caused the clearing house to lose money when he blew up.

    https://www.ft.com/content/43c74e02-b749-11e8-bbc3-ccd7de085ffe
     
    Last edited: Sep 13, 2018
  2. Wow, this is pretty insane.

    Anyone have a price chart? The article mentions "extreme market moves in German and Nordic energy markets."

    This is reminiscent of what happened in the Shanghai iron ore futures market some time ago - a few tycoons were rumored to have been caught on the opposite side of the trend.
     
  3. it'd also be interesting to find out how he was able to access the Nordpool power markets when he first went out trading for himself - the FT article mentions that he once worked for a firm, before leaving to trade with "$30k of his own money."

    i thought the electricity markets required institutional-level funding to get access?
     
  4. Or said another way, "Lucky with bad risk management."

    But to the point of the thread, I'm a bit more interested in the Nasdaq's risk management procedures that allowed a single trader to blow through so much of the default fund. That there's idiots out there losing money is nothing new. How did the Nasdaq let him get so far off-sides and end up footing the bill? What if he'd been trading someone else's money and his position size was 10x what he had personally?

    it looks like this was around late '90s, early '00s based on a quick read of his history, and he left an energy firm. So presumably there's connections and less regulation beyond what
     
  5. smallfil

    smallfil

    You cannot access the article because you need a subscription. Is there a free version that we can read?
     
    murray t turtle likes this.
  6. dealmaker and smallfil like this.
  7. smallfil

    smallfil

    Thanks. This guy is trading way above his head. Risk management gone to the dogs! Even if you had a $1 billion account to trade, if you do not practice sound risk management, you can blow it all away! If he stuck to 2% limit per trade of his total capital, no way he would have blown up his account.
     
    Peter10, comagnum and trader99 like this.
  8. dealmaker

    dealmaker

    FT article is blocked, I am guessing the extreme moves were due to the unprecedented heat Europe experienced in 2018?
     
    murray t turtle likes this.
  9. Unseasonably wet Norway. (...pushing power prices down heavily relative to Germany because of hydro power). So, short German electricity, long Norway.

    As someone who has both foreseen and reacted to increased hail and wind exposure (during my time in insurance), I have little sympathy for someone who failed to consider weather extremes' effects on their portfolio.

    Now. How did the Nasdaq miss this?!
     
    smallfil and dealmaker like this.
  10. "Theme bets" are not so easy to exit with a technical stop.

    Remember the winners from 2008 who shorted sub-prime mortgages... some/several of them have lost a bundle this time around. IOW... "just because you got a big play/s right sometime in the past, doesn't mean you're actually Norman Einstein".
     
    Last edited: Sep 14, 2018
    #10     Sep 14, 2018