Novice Daytrader Mistakenly Trades In Live Account, Builds $5 Billion Position, Makes $10MM Profit

Strange things are happening in the world of trading these days.

On one hand, you have Deutsche Bank's supposedly expert, professional traders making gargantuan bets, which exceed by 12 times the bank's daily VaR limit, only to watch the trade implode spectacularly, resulting in a daily loss in the hundreds of millions; at the same time, novice traders somehow accumulate multi-billion positions not knowing they are trading in a live account... and make millions in profits.

That's what happened to French trainee daytrader Harouna Traoré, who used a demonstration version of the Valbury Capital brokerage platform "to become familiar with the basics of trading", before eventually building up the courage to open a live, €20,000 account last summer for the occasional "real" trade.

This is when things got interesting: as the FT reports, shortly after opening the live account, he was practising trading at home on what he thought to be the demo version, placing massive, €1bn trades for European and US equity futures, before realizing that it was the live platform and he had run up a loss of more than $1 million.

Now he wouldn't be the first amateur trader to fall into a deep hole by trading without knowing what he was doing; however, we may be one of the very few who continued trading and managed to not only dig himself out of the hole, but to eventually build up an even bigger, $5 billion position - rapidly approaching Jerome Kerviel levels - in S&P futures while turning the original loss into a profit of more than €10 million!

“I could only think of my family,” said Traoré, who is married with two children. “I was stressed.”

And then, inexplicably, having made $10 million in profits - even though it was almost literally by throwing darts at a dartboard - he called Valbury several days later to explain what happened, at which point the brokerage told him he had breached his contract and his positions were “void and cancelled”.

One almost wonders if Valbury would have "voided and cancelled" the positions if Traore held a multi-million paper loss. Almost. Because with a profit on the books, what the brokerage effectively did was confiscate the funds.

As one would expect, the daytrader, who was recently fired by Reuters, was furious, and in January he sued the brokerage in French court, claiming breach of contract and negligence by the British brokerage and calling for it to pay him the €10m he says it owes him.

Valbury, which is owned by the eponymous Indonesian financial services group, denies any wrongdoing and is preparing to file its initial submission next week. It is expected to argue that Mr Traoré is not a consumer, but a financial services professional, so the case should not be heard in France, where he would benefit from greater consumer protection.

Quoted by the FT, Robert Falkner, a partner at Reed Smith which represents Valbury, said: “We are familiar with the spurious allegations made by the French arcade trader Mr Traoré (a seasoned market risk analyst formerly employed by Reuters) which are strongly denied as wholly without merit and will be vigorously contested.”

“This matter is now before the courts so that we consider it inappropriate to comment further,” said Mr Falkner, adding that Valbury had kept its regulators at the UK Financial Conduct Authority “fully informed”.

Valbury is expected to point out that Mr Traoré said in his application to open an account that he had traded futures and options frequently. Traoré admitted that he had “tried to embellish my trading experience and professional qualifications at the time, as I thought my application might otherwise not go through as easily”.

According to the court filing by Mr Traoré, which has been seen by the Financial Times, Valbury told him that it had treated the trades he carried out as a “manifest error” because he had thought he was using its demo platform and had not intended to place real orders. The brokerage also told him that he had breached his trading limits.

As for Traoré, his lawyers at Linklaters used an odd defense, claiming that the 41-year-old had no prior experience of financial markets and previously worked at Thomson Reuters, selling performance analysis software to investors, before being made redundant last year.

His lawyers also said Traoré should have been prevented from trading such large amounts by preset trading limits that could have been imposed by Valbury.

They disputed the brokerage suggestion that his orders were a “manifest error”, the definition usually given to fat-finger trading mistakes, because most of the profits were only made once he realised he was trading on the live platform.

Of course, none of this matters when the amount at stake could potentially put the brokerage out of business.

The stakes are high for Valbury, which made £9.88m of revenue in the year to December 2016 down from £11.7m the previous year. It reported its third consecutive annual loss of £455,405 in 2016 — its last set of publicly filed accounts.

Meanwhile, a more in depth look at Valbury and one wonders just how much impropriety there is at the company whose CEO, Mark Hanney, previously spent five years as financial director of Refco, one of the first US brokerages to collapse ahead of the 2008 financial crisis.

Finally, it is an absolute certainty that if the tables were turned, and if Traoire was the one who owed $10MM due to trading mistakes, it would be him that was being sued by the brokerage, not the other way around. We doubt that is a legal plea, however.

* * *

Update: Valbury's legal advisor has notified us of the following:

Our clients are particularly concerned with the false assertions in your article that (i) Valbury’s financial standing may be affected by the outcome of the dispute with Mr Traore and (ii) that Mr Hanney was in some way connected to or responsible with the collapse of the US brokerage Refco, for instance:

“Of course, none of this matters when the amount at stake could potentially put the brokerage out of business.”

“Meanwhile, a more in depth look at Valbury and one wonders just how much impropriety there is at the company whose CEO, Mark Hanney, previously spent five years as financial director of Refco, one of the first US brokerages to collapse ahead of the 2008 financial crisis.”

In fact, the correct position is that in 2017 Valbury made a profit of EUR 10 million as a result of its own hedging activity in connection with the Traore matter.   In addition to this Valbury recorded an operating profit from its sales activities with an increase in sales revenue of 25% in 2017.   The FCA have been informed by our client and are fully aware.

With respect to Mr Hanney, he was not a director of the US entity that collapsed.  He was a director of the UK Refco’s regulated UK business, which remained operational and solvent during his tenure.  Mr Hanney was also a founding director of Marex-Spectron which included a management buyout of the Refco UK business and which was a successful UK broker.  Your article is, therefore, clearly misleading and bound to be read as suggesting, falsely, that Mr Hanney has a track record of managing brokers that go insolvent or was in some way responsible for the collapse of the US brokerage firm Refco Trading.  

 

Comments

jcaz Arnold Thu, 06/21/2018 - 09:27 Permalink

That's how it works- house keeps the winnings.

Back in the 80's- when brokerages were marginally more fun and didn't have position limits-  I had a guy in the office fat-finger a hog-futures order for a client, added two zeros to the buy.  By the time anyone figured it out,  client made $450K, set the broker up in his own shop, went on to become one of the biggest commodities brokerages in the midwest-  all built on an accident.

He would have just walked away had he lost and never paid the judgement,  so call it a tie.

He got Corzined.......

In reply to by Arnold

NoDebt ZENDOG Thu, 06/21/2018 - 09:57 Permalink

NoDebt's first rule of money:  When you make an enormous profit, you take it and you keep your fucking mouth shut.

(This is the adult version of NoDebt's first rule of money for children:  "When somebody hands you money, what do you do with it?  You fold it in half and put it in your pocket.")

What a dumbass this guy was.  TAKE THE FUCKING MONEY!  KEEP YOUR MOUTH SHUT!

 

In reply to by ZENDOG

RAT005 Hopeless for Change Thu, 06/21/2018 - 12:12 Permalink

I have a minor league similar story but no happy ending... Through the 90's did a lot with developing trading models using ~$500 kitchen table stock analyses software.  Finally got past modeling things that DID happen, to calculating future trigger points that alert that things WERE happening.  Instead of trying to be smarter than the market and model everything.  Make a basic model and experiment against tuning it to all markets and then identify the market that works best.  The result for me was either the 10yr or 30yr Bond market, can't remember which one.  My interest was stocks and metals but that wasn't were the model worked.  I practiced with my InterActive Brokers paper trading account with real market data simulator.  The data was kind of real time but I didn't realize not 100% real time.  After a few weeks I felt really comfortable and was making comfortable money.  Then the morning of trading my real account with the real data.  It was much faster, more volatile and in a few hours my account was down 20% from maybe a margin call after doubling down too many times into a loosing trend.  Welcome to the real world.  I slowed things down over the next few weeks and just about earned it all back.  Not counting climbing out of a hole, I was very happy with the daily earnings.  Something like $150/day.  Nice play money on top of adequate fixed income retirement.  After weeks of building confidence, I got slammed again, maybe only half as bad.  The system that was great at grabbing pennies out of the market almost every day, would loose dollars when things got out of control......eventually quit with a small loss.  Always wondering if I just should have stuck with it.....

In reply to by Hopeless for Change

Escrava Isaura King of Ruperts Land Thu, 06/21/2018 - 16:16 Permalink

Novice Daytrader Mistakenly Trades In Live Account…………his lawyers at Linklaters used an odd defense, claiming that the 41-year-old had no prior experience of financial markets and previously worked at Thomson Reuters, selling performance analysis software to investors

C’mon!

Who believes this nonsense?

Actually, probably 99% of the population.

In this case, keep lying, I guess.

 

In reply to by King of Ruperts Land

Hopeless for Change silverserfer Thu, 06/21/2018 - 13:02 Permalink

I'm not sure at which level the "Take a Shot" rule exists, but when I went through orientation they made it clear in no uncertain terms that, if you would not have been able to cover the losses, you would not be paid on the gains of a trade. 

 

They called it "The O'Hare Spread", where you would put on a huge position going into an economic release and "hedge" it against a one-way ticket out of the country

In reply to by silverserfer

MANvsMACHINE NoDebt Thu, 06/21/2018 - 10:18 Permalink

This one is quite easy to resolve.  Find someone who traded and lost money on their platform who can say that they didn’t really know what they were doing.  Also ask them if they were made whole on their losses.  When they say they were not, you have effectively removed the legs from under their argument.  Find a bunch of these people and they should demand repayment for their losses.

The fact that he might have lied about his experience is irrelevant as others certainly did the same.

 

 

In reply to by NoDebt

lookslikecraptome TGF Texas Thu, 06/21/2018 - 10:45 Permalink

truly tough question to answer. I like order books. But every one has their own methods. Go dig around, do it some more, and more, and more and more. Do not pay people any money for their systems. Why would any person sell u the golden goose.

If you consider paying someone for a system, damn well ask them for their accounts statement across at least five years of trading. When I asked over 30 "dream merchants" for there accounts statement, not just their hypothetical optimized back tested results, those fucking pigs all disappeared. 

Your method does need to fit with who u r, in some manner. Gonna stop there on that one. Do not want to sound like tony robbins. 

One piece of trading software purchases is always true.

I will modify it from its legalese. 

Be the fuck careful, cause NO ONE knows if this shit will work. 

If it did y would they sell it? 

In reply to by TGF Texas

OneSilverDollar TGF Texas Thu, 06/21/2018 - 15:08 Permalink

Maybe I should help someone. You could try paper-trading with tradingview. It´s free, and they have indexes and other things in real-time, others delayed or end-of-day. It looks a bit confusing at the beginning, because it is supposed to be a social network. Go to the ´interactive chart´ page. Set a watchlist. Tradingview is interesting, also because you can see quotes that you will not have with your homebroker, indexes of other countries, stocks of other countries.

I have made many mistakes before trading beeing profitable. 

Modestly, let me give you some advice. 

- Never follow advice about buying this or that. The idea is yours. If you lose, it´s your cash.

- Never fight a trend. For me a trend is a simple moving average. All time frames matter:

5min / 1hour/ 1 day / 20/50/200 days, you want to see what the other traders are looking at.

- spend time: follow the candles in realtime and see how they behave. 

- manage risk: you need to know at which price exactly you are going to close your trade if it is not profitable, before opening. The difference in price between opening a trade and a stop-loss is LESS than the difference between a stop-profit and opening a trade.

- Don´t go broke: at the beginning, trade a small part of your cash, a part that you can lose.

- Never trade when you do not feel good (family, health, stress).

- Never let open positions without watching. 

- You can use leverage. Only if you have the cash to buy without leverage.

- Never sell a call if you don´t have the underlying asset. Never sell a put if you don´t have the cash to buy the underlying asset.

- You need an edge. Be the specialist of 1 stock or 1 currency or 1 bond.

- Wait. you don´t need to trade each day. Some ideas take time to build. 

- Traders sometimes behave like warriors, they are over-confident. The stop-loss is your friend in the battle, unless you trade big bucks. 

- Make a trading book, try to understand your mistakes, write the reason of each one. 

- Take care of the tide. Sometimes, an all class of asset will go up or down. Like a good sailor, use the tide to reach the port. 

- Don´t believe the aleatory-random-game speech. Trends do exist. 

 

Enjoy. You can turn ideas into cash.

In reply to by TGF Texas

Banker Buster NoDebt Thu, 06/21/2018 - 11:11 Permalink

Yep, this guy wanted to talk to someone about the lucky trade and opened his mouth to the wrong people.  Pretty crooked to try and take the guys profits though.  Also, who is this brokerage firm that doesn't have a computer program running enforcing purchase limits.  Welcome to 2018, there are programs that can limit this type of exposure FFS.  Both parties deserve each other.   

In reply to by NoDebt

zebra77a FEDbuster Thu, 06/21/2018 - 10:16 Permalink

Every hour you work in a greenhouse will produce 12 lbs of food or higher.  Venezuela could feed the entire worlds population of 7 billion people on 3% of it's landmass by using the growing techniques of Growing Power.  Growing Power grew a million pounds of food on 3 acres, it's an astonishing 950 lbs food PER DAY PER ACRE.

 

It takes a <very> concerted effort by everyone to bring shortages and starvation to a nation. First you have to brainwash people into not working, impoverish them with debt, bring the military in to steal everything and stop the food trucks.. 

 

In reply to by FEDbuster

Adolfsteinbergovitch p4424119 Thu, 06/21/2018 - 12:33 Permalink

You didn't find this job 6 months ago OR you haven't been paid once in 6 months. Supposing you are who you pretend to be, either you try to find new slaves to replace you in your depressing failure of a job in porn, OR yoki are the ringleader, hence far from being this innocent girl you at as an avatar. 

In any case good luck with your depressing honey trap. 

Loser. 

In reply to by p4424119

RAT005 Anonymous IX Thu, 06/21/2018 - 12:39 Permalink

There are no claims of 1,000 lbs/acre, but study Joel Salatin for great vertical integrated micro farming.  Followed his advice for chickens and they are a lot of fun.  I'm interested in rabbits but the wife relates to them as pets.  Gardening takes years to perfect because the feedback loop is so slow.  Definitely touch base with the old folks.  Consider my apple tree, some years we give boxes away.  This year looks like 10 apples :-(  Fencing is another thing that works great until the day it doesn't and then you can loose half a garden.  We fight deer, mice, rabbits, birds, and a stray dog killed a chicken.  For some reason the fox hasn't come.  Neighbor across the street on the creek bottom, looses chickens to racoons but they don't cross the street up the hill to our place.....

In reply to by Anonymous IX

Endgame Napoleon Anonymous IX Thu, 06/21/2018 - 15:52 Permalink

You mean this part of the article?

“On one hand, you have Deutsche Bank's supposedly expert, professional traders making gargantuan bets, which exceed by 12 times the bank's daily VaR limit, only to watch the trade implode spectacularly, resulting in a daily loss in the hundreds of millions; at the same time, novice traders somehow accumulate multi-billion positions not knowing they are trading in a live account... and make millions in profits....”

In reply to by Anonymous IX

OverTheHedge zebra77a Thu, 06/21/2018 - 16:50 Permalink

 

https://en.m.wikipedia.org/wiki/Growing_Power

Despite the organization's successes in attracting attention to urban agriculture and community food systems causes, Growing Power has not been able to attain financial self-sufficiency. Facing mounting debts and legal challenges, in November 2017 Growing Power's board of directors voted to dissolve the organization

Miracle system that can't make a profit.

Hmmmm

In reply to by zebra77a

jin187 FEDbuster Thu, 06/21/2018 - 12:24 Permalink

1oz of silver = 18 eggs?  I thought it was the Bolivar that was suffering from inflation.  Considering that I can buy over 100 eggs for what an ounce of silver is worth in USD, I'd say that isn't the greatest store of value if it's only getting you 18 eggs in Venezuela.  Would have been better off spending their money on a chicken coup.  In a financial crisis of this magnitude, true value is only stored in the means of production.  I wonder how many ounces of silver it would take to buy a starving man's last egg.

In reply to by FEDbuster

RAT005 FEDbuster Thu, 06/21/2018 - 12:52 Permalink

As others have noted, 18 eggs for 1 oz is a screw and I'm sure you either made that up or made a mistake.  WeRchange went to Venezuela many months ago.  Then he got about a weeks food from a small restaurant for 1 ASE.  Even at $2/doz, 1 oz of silver should be 8 doz. eggs, not 1.5 dozen.  My 5 chickens lay about 2.5 eggs/day = 75/mo, 6.5 doz/mo.  Their summer food while also eating bugs and grass is about $10/mo.  So $1.55/doz just for most of food, not all of food.

In reply to by FEDbuster