Was the margin really paid by Barings? But Why?
I have only limited knowledge of Stock Trading, and I have recently watched Rogue Trader. It's the story of Nick Leeson, an investment trader who single-handedly bankrupted Barings Bank in the 90s.
The plot is that Nick Leeson trades futures on SIMEX. He should only trade for customers, however, he starts trading for the bank itself, pretending to do trades for an anonymous customer.
For future contracts, it's customary to pay a margin, depending on the volatility of the future traded. This margin is usually paid by the customer trading the future.
However, in the movie the margin payments are done by Barings. The whole movie plot depends on this, as it is what ultimately bankrupts Barings. I'd not give it a second thought, because it's Hollywood, and we should be used to plot holes. However, as the movie reflects an actual event, and Barings actually did collapse, I'm not sure what is going on.
Was the margin really paid by Barings? Why? Did this change in legislation after (or as a result of) Barings, and nowadays margin is paid by the customer himself?
Best Answer
Someone has to pay the margin; an exchange isn't going to let you buy and sell without putting up some money.
Normally, Barings would take this money from the customer and (if an actual purchase was to be made, instead of balancing it internally with another customer's sale) pay it to the exchange where the contract was being traded. Since Barings didn't have actually have a customer paying to have these trades made, then Barings had to pay for the margin on the futures contracts itself.
Pictures about "Was the margin really paid by Barings? But Why?"
How did Nick lose money for Barings Bank?
Unbeknownst to Barings, there were significant losses. According to Leeson, they were attributed to his coworker's error. In an attempt to recover those losses, he made unauthorized and risky trades with customers' money. He hid the losses by falsifying records in a little-used errors account called 88888.What happened at Barings Bank?
Barings Banks was a British merchant bank that collapsed in 1995 after one of its traders, 28-year-old Nick Leeson operating in its Singapore office, lost $1.3 billion in unauthorized trades. Barings was one of England's oldest merchant banks and at one point, even Queen Elizabeth II had an account with it.What lessons do you believe can be learned from Barings collapse?
3 Lessons from the Fall of Barings Bank and Rogue Trader Nick...- Never Trade on Leverage and Double Down. ...
- Make Sure You are Investing and Not Speculating. ...
- Huge (and Quick) Market Movements Might be Orchestrated by Institutions.
How did Leeson break Barings?
These were unauthorised trades which he hid in an account named Error Account 88888. He also used this account to execute all his unauthorised trades in Japanese Government Bond and Euroyen futures and Nikkei 225 options: together these trades were so large that they ultimately broke Barings.How Nick Leeson Bankrupted Barings Bank UK | Rogue Futures Trading in Singapore | FBE Capital
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