Losing Billions on the DAX

How a French Trader Managed to Lose $7 Billion

Jerome Kerviel

Here’s a fun one…

Jerome Kerviel was a French trader who worked for Societe Generale. In 2008 he lost around $7bln on European stock index futures.

His strategy (which had been effective until then) was pair trading the indices. Buying one and selling another. Removing some directional risk but profiting from the differential change.

But he wanted to play directionally… None of this hedging nonsense!

He wanted a pure long play. Somehow he managed to trick the internal risk system and just went b@lls deep long…

And so he bought:

  • 30 billion euros worth of EuroStoxx
  • 18 billion DAX
  • And 2 billion FTSE

A dabble, a nibble, a feeler positon if you will… And yep you guessed it, the market tanked.

DAX chart for illustration below:

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After unwinding the lot, the loss stood at nearly $7bln. It didn’t help of course that the whole finance world knew SOCGEN was dumping contracts in a panic and would have been heavily short too, putting massive pressure on the index.

If only Jerome had watched my YouTube videos…

“Keep your risk managed!”