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Nick Leeson warns of financial trading pitfalls

by August 24, 2016 General

“My face should be the biggest warning signal.”

Twenty-one years after single-handedly sinking the world’s second oldest merchant bank, former Barings Bank rogue trader Nick Leeson is a man acutely aware of his past.

Having racked up more than £860m in losses as years of Leeson’s fraudulent trading careered out of control, Barings Bank went bust and Leeson was sentenced to six and a half years in a Singapore prison.

He subsequently put pen to paper detailing his story, fought a successful battle against colon cancer and had a film, starring a young Ewan McGregor, made about the exploits that landed him behind bars.

Now Leeson is back in the public eye, imparting his knowledge to prospective traders via an online trading course run by Dublin startup Bizintra.

But why would anyone take Leeson’s trading advice given his storied history?

“It’s quite a nasty business to be honest because the facts are that most people who trade the financial markets — retail customers without too much experience — lose their money fairly quickly or they try to hit the ball out of the park fairly quickly which isn’t the way that the business should be done.

“The idea with Bizintra is that they’re trying to deliver more consistent returns over a period of time.

“My course, in particular, is not going to be about the great things that happen in the financial markets, it’s going to be a fairly realistic approach to it. It’s billed as being the good and the bad things about the financial markets.

“I’m not out there saying everyone should trade financial markets because they shouldn’t. There’s a lot of people, like I was years ago, who are quite ill-disciplined and I wasn’t able to take a loss.

“I was getting too emotionally attached to every position that I was taking and there are a lot of people like that and they genuinely shouldn’t trade financial markets because you have to be dispassionate, you have to be very disciplined and you have to learn how to take a loss.

“Nobody initiates a trade expecting it to lose money. 100% of people expect to make money but 100% can’t make money because that’s not the way the markets work.”

The former trader, who now lives in Galway, makes no attempt to defend his past sins or dispute his punishment, but adds that Barings “wasn’t a very well run bank” and that the necessary checks and balances didn’t exist to catch him in the act.

So two decades on and a financial crash later, what is the current state of regulation in Ireland and the UK?

Better but still far from perfect, is Leeson’s view.

Too much pen pushing and not enough oversight in financial institutions worries him, as does the culture of the industry.

“Personally, I don’t think you’ll see a great sea change in my lifetime. It’s just a work in progress.

“There’s always going to be people who try to beat the system and break the rules and unless the people policing that — the regulators and the internal controllers — unless they up to their game there’s still going to be breaches but thankfully it doesn’t have the significant impact that I did all those years ago.

“The way that I’ve always viewed financial markets — [although] not whilst I was necessarily trading in them — is like the modern day amphitheatre. Not everybody can win.

“You are fighting against the other people for profit and if you get a competitive advantage, you tend to force it home.

“That all comes back to — I hate the word greed just because it’s never really what motivated me, it wasn’t a money thing — but you’ve got some very good brains competing against each other in this modern day amphitheatre where not everyone can survive and so that’s ego and testosterone and you throw it all into the mix and if people aren’t properly controlled the potential to go awry is greater than any other industry, I think.”

It’s those sort of risks and the potential for fresh-faced investors to be “suckered” into expecting huge returns that he plans to warn against in his free trading course with Bizintra that will run in September and again in the subsequent months.

Advanced courses in the psychology of trading and risk management will then be made available to paying customers.

It’s part of the company’s goal to allow traders “negotiate the financial markets by providing education from a credible and experienced source” and to “change the face of online education” in the process, according to company chief technology officer Sam Warner.

For Leeson, the sight of his face should be enough to warn his pupils of the potential pitfalls they’ll have to negotiate as they try to chart a course through the murky waters of the markets.

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