Nick Leeson - the story of "anti-success"
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Thread: Nick Leeson - the story of "anti-success"

  1. #1
    Trader Sascha's Avatar
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    Nick Leeson - the story of "anti-success"

    Nick Leeson



    Nicholas William Leeson was born in Watford, 25 February 1967 where he attended parmiter's school. after finishing school in 1985 his first job was as a clerk with a private bank, Coutts. he then moved to Morgan Stanley in 1987 for 2 years, and then to Barings in 1989. Leeson is an English former derivatives broker famous for his time at Barings Bank, the United Kingdom's oldest merchant bank. in 1992, Leeson was appointed as a general manager of a new operation in futures markets on the Singapore International Monetary Exchange (SIMEX). Barings had held a seat on SIMEX for some time, but didn't activate it until Leeson was sent over there. Leeson was sent to Singapore after he was denied a broker's licence in the United Kingdom because of fraud on his application. between Leeson and Barings assured this denial when Leeson applied for his licence in Singapore.




    at first, Leeson made several great successful trades that brought the company large profits about £10 million that calculated as the company's 10% annual profit. thanks for his effort, he received extra bonus £130,000 on his salary of £50,000 in the same year for his success. this made his career rising up until Barings entrusted him not only as a chief trader of the company, but also the head of settlements which his responsibility to ensure the company's account. this was the reason why he picked up to work at SIMEX as the company's trusted person, which it was actually a bad idea, the worst nightmare the company would ever achieved.

    following by his success, Barings company totally relied on Lesson to manage their funding. this made Lesson has an authorized access to almost all-about the company where he slowly began to lose money from Lesson's speculative trading. in next few months after his excellent trades, Leeson would go on to make poor and unauthorized trades that led to huge losses, but no one was the wiser. Leeson would simply cover his tracks using an error account initially set up to hide a mistake made by an inexperienced team member, who lost the company £20,000. he would then report artificial profits to the bank’s headquarters in London and the British tax authorities.




    As time passed by, Leeson had chalked up over £208 million in debt by the end of 1994. if Barings hadn't blindly trusted their “golden boy money-making machine”, the bank might still be operational today. their available trading capital of £350 million would have been enough to cover the losses incurred. unfortunately for the bank, Leeson’s luck soured even further. when an earthquake happened and struck Kobe, Japan, he attempted to recover the losses by betting heavily on the market in purpose of recovering. his gamble failed spectacularly and his losses then snowballed to over £827 million. according to the historical exchange rate between the pound and Singapore dollar at the time, that’s approximately $1.8 billion. here's the chart when the Kobe earthquake in Japan caused Leeson's trades were all cut off into losses.


    on January 16th, 1995, with the aim of "recovering" his losses, Leeson placed a short straddle on Singapore Stock Exchange and on Nikkei Stock Exchange, betting that Nikkei would drop below 19 000 points. But the next day, the unexpected earthquake of Kobe shattered his strategy. Nikkei lost 7 % in the week while the Japanese economy seemed on the verge of recovery after 30 weeks of recession. Leeson took a 7 billion dollar value futures position in Japanese equities and interest rates, linked to the variation of Nikkei. he was long on Nikkei. in the 3 days following the earthquake of Kobe, Leeson bought more than 20 000 futures, each worth 180 000 dollars.

    again, he tried to recoup his losses by taking even more risky positions, betting that the Nikkei Stock Exchange would make a rapid recovery. he believed that he could move the market but he lost his bet, worsening his losses. they attained an abysmal low as much as 1,4 billion dollars, more than double the bankʼs capital who is now bankrupt because its own capital would be insufficient to absorb the losses generated by Leeson.

    by then, Leeson knew the game was up. he sent a confession letter to his boss in London, packed his bags and fled the country with his wife, staying in a slew of luxury hotels while on the run in Malaysia and Thailand. at the same time, administrators were tasked with managing the sudden collapse of Barings. they tried bailing out the bank, but it failed and was ultimately declared insolvent on February 26 th, 1995. that’s it, a young rogue trader born into humble beginnings had single-handedly brought down the curtains of a prestigious, 233-year-old bank. Leeson was eventually caught in Frankfurt, Germany and was brought back to Singapore to face the law despite fighting against extradition. he was subsequently sentenced to 6.5 years jail in Tanah Merah prison.




    meanwhile, the fall of Barings caused an unprecedented crisis within the city. 9 senior managers were accused of having badly managed the situation and in March 1995 the bank was bought by Dutch group ING. it was the less than glorious disappearance of a bank founded in the 18th century after 223 years of existence. the bankruptcy of Barings had a world-wide impact, affecting even those who weren't among the financial circles. the public expressed concern about the use of by-products and about the "madness of financial markets" where a young "golden boy" of less than 30 years can cause the demise of financial institutions which nevertheless had experienced a dozen crises during 233 years. in the end, thanks to Leeson's track record and experience, This affair has nevertheless lead to the creation of new jobs such as "compliance officers," has strengthened the role of risk control within investment banks and has created a separation between Front, Middle and Back Office functions.

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    Trader Sascha's Avatar
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    this was the expectation from Leeson about Nikkei and according to his mindset in trading to keep the trades as long as possible, he was right all along about the movement. after the 30 weeks recession, Japaneses has been recovered slowly and market has climbed its high price again which according to his statement above, Nikkei reached the highest level since 1996. if only people, or he was patient enough, i think the result now will be different but what happened in the past can't be repeated but learned as our experience. which i believe that Leeson learned a lot as well for sure.




    before that, during his captive in Singapore's prison, Leeson was charged with forgeries and misrepresentations made to conceal unauthorized deals while trading on the Singapore International Monetary Exchange, or SIMEX. he was accused of defrauding Barings Futures Singapore, cheating SIMEX and forging documents. during his stay in prison, Leeson must strive himself with cancer that could give him a 30% chance of dying within the next 3 years. fortunately for him, he finally got recovered periodically after serious medication by the prison authorities and hospital care. finally, he was released from prison in 1999 which according to the picture above.




    there are some points that makes traders struggle hard in this business before they can be success. it's all has been explained very well from the picture above. the first point that has huge affection to our whole performance is self doubt. many people has proved, starting with me and many others who's been doing this business for decades, explained that self doubt is very destructive. we must take our time to believe on everything we've been working and developing for so long and build our own confidence. however, don't make another new mistakes with overconfidence because it's also destructive too.

    secondly, it's comparison to others. to understand this business completely with high concentration, we must stop comparing ourself to other traders. it's common thing to see how traders trade differently and has unique strategies as well. best thing to do is to make other people following us not the opposite way. with the help of confidence from the first point, i think we'll be making it alright and able to focus on our own trading. third and fourth point are about fear in change and failure. in a nutshell, no successful traders or even wealthiest people in the world started this business without ever received any huge losses and failures. then the problem's solved and for other people who still got these fears you better move on and think with your logic that high risk business will give us losses sometimes. later on, success will come to us after a long journey and difficult struggling.



    long story short, at the age of 50, Leeson is now a man in demand from the very people he defrauded in the first place. bankers and risk specialists want to learn lessons from the guy who ripped off the system big-style. while Barings Asset Management has risen from the ashes, Leeson himself has morphed into a nomadic after-dinner speaker, giving talks in South Africa one week and Mexico the next. and he's making a decent living out of it too. he also said a lot of things to other traders about this business and here i'll try to give the example from his quotes i like for most.


    Leeson admitted that the Berings bank was collapsed because of his own mistake and he paid the consequences later. after he's fulfilled his responsibility in prison and gained plenty of experience from the incident, he's slowly begin to climb up again and become more famous until now. no wonder that he's popular whether he's doing crime, which it's out of my mindset.



    knowledge is nothing without understanding was a recurring quote that Leeson referred to. apparently it was originally coined by the Wall Street Journal. the point Leeson was making was that processes and well written procedures, risk managements and compliance forms are all well and good, but if people (or as individual trader) in your/our own organization doesn’t understand the fundamental business and processes that drive the business the procedures and forms are useless.



    this really reminds me of myself when i was keep blaming things even my own understanding that caused me lost my trades continuously. i was unable to accept the fact about the business and instead of taking the learning to reduce my stress, i insisted to continue trading which eventually ended me to lose even more. this quote is my best reminder to accept my mistakes and everything we've done has the consequences. so be a responsible trader if we really want to success.



    a good warning for all traders and beginners to execute this business carefully and seriously as it's not a simple game or gamble. one wrong move could lead into serious problem and wrong managements will damage our whole account for good. market are always uncertain and confusing, never be that easy to be success. just like what i've explained in above post about anti-success tips, only few people who capable to reach success while most of them still left behind and struggling with their own problems. since the limit of favorite quotes are 3, i consider this as the bonus and hopefully it's acceptable. wait for more contents in next update, i'm not done yet.

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    things i learned from Nick Leeson




    The mistakes that Leeson made, which Barings' horribly bad internal controls didn't catch, also happen to be the same mistakes investors tend to make with their own money. So, here are few ways investors can learn what not to do from him.

    1. don't be a reckless person and overconfident.
    experience should teach us to be as humble as always. no matter how much profits we can make in a day, a month, or a year if everything's followed by arrogance, sooner or later we'll going down because of our own overconfidence. learn from this trader's experience Nick Leeson and try not to repeat his mistakes.

    2. take the responsibility wisely. don't make high status and trusted traders changes the way we trade.
    if someone's working with brokers or company and entrusted as the branch manager or top consultant, don't fail the company by becoming a rogue trader and trade the broker's money freely without responsibility. returning $1,000 is easier to do than $1.8 billion so consider your actions carefully and don't change the way we trade.

    3. don't speculative with market without taking any considerations first.
    anything can happen in market and many other factors beside market can move the price. an earthquake in Kobe, Japan should be a nice warning for Leeson and especially us the readers about how importance to take heed with market by not taking all the risk at once just to get huge, multiplied profits. natural disasters also plays its own role to change the outcome of our trade so be careful.

    4. don't trade with big risk, we'll never know what's gonna happen with market.
    big risk comes with big return but followed by big losses as well. do this with experience and responsibility. if you're willing to do this, better use your own money and don't use other's money like Leeson because it'll bring you up to jail for the losses you make.

    5. natural disasters affect market in long term especially when it damages the country so bad. so don't expect the recovery sooner.
    it took 30 weeks for Japanese to recover from recessions after an earthquake struck the country and killed more than 6 thousands people. so don't expect quick change or recovery by buying the currency as soon as possible because this moment is good to sell it as the nation's recovery takes time not in an instant way.

    6. once the big fundamental like natural disasters happens in a country, don't buy the currency but sell it.
    just what i previously wrote above, be a smart trader and take the opportunity based on situation. becoming an opportunist will give us a lot of money and wait for the timing to enter the trade and hold for long term. fundamental factor like natural disasters damages seriously to the economy where the recovery will be slowly improving.

    7. be honest as a person or finance manager when we're trading with other people's money.
    never edited your report, your trading documents, your identity, and never edit everything because this business should be done in honesty. especially when we're working with other traders who already trusted us to do this business. we don't want to fail them and make them angry because of our fraudulent actions so always do things in legal way. people prefers to accept things in honest way earlier than to accept the lies later.

    8. don't run from the mistakes we've done. accept it and pay the price. mistakes can only be resolved.
    similar to Nick Leeson famous quote that i liked. mistakes must be evaluated and solved so we won't get another trouble with our next trades. stop our trading until we can find the solution from our problems. running away like Leeson to Singapore would only led him to prison and made him looked more than just a guilty person, but as an intentional criminal.

    9. try to be patient as a long term trader. taking months to years to hold the profits is also good idea.
    the idea of Nick Leeson trading rules to hold as long as possible really inspired me to become a long term trader. in my previous post i also shared his thought on twitter said that Nikkei had reached its highest level since 1996 where he was placing the long orders and cut them off because of Japanese earthquake struck and caused massive decline in the next weeks.

    10. success doesn't take 1 or 2 years. problems are always in the way.
    now Nick Leeson has gained his popularity back again and people, especially bankers in the world interested to learn from him how he did things back in Barings. people sees him in different ways and never forget what he's done in his past, but now he proved it's all just what happened in old times and now he's getting better with excellent career in trading and has wonderful life.

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