System Trading Blog

Make Your Money Work Harder

Biogically Everyone´s Wired to Gamble When Facing Loss

leave a comment »


Jérôme Kerviel. The man behing €4.9b SocGen loss in Y2008.

Recently Financial Times run an articleWhat makes a rogue trader?. In a nutshell: when facing loss, traders are biologically wired to gamble.

¨Rogue traders’ behaviour is financially stupid – traders are trained not to double their losses but to set risk limits and to retreat from risky positions when they face danger. Biologically, however, doubling is sound. Starving animals should gamble in search of a food windfall, even though each has only a small chance of success. Most will fail, but some will survive and reproduce.¨

Implications for system trading are that there is an extra risk to invest with trader who´s down and the benefits of pre-set risk-to-reward proportion goes beyond the dry performance stats.


Written by A.S.

December 14, 2011 at 9:56 pm

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: