Why don’t rogue traders ever make money? Question answered.

Huge rogue gains are statistically possible, but they’re not incentive-compatible.

My friend Who Does This Stuff For A Living points out that my reasonable-sounding question actually has a perfectly straightforward answer: traders have an incentive to “go rogue” only if they’re losing money, and that incentive disappears once they make it back. It’s only the losing positions that keep getting doubled-up.

Continue reading “Why don’t rogue traders ever make money? Question answered.”