A rogue trader is an individual who circumvents rules or limits and causes huge problems for the institution that employs him and its clients. Rogue traders are known for racking up huge losses in speculative investments they weren’t supposed to be making. Weak internal controls at an institution may allow a rogue trader to hide losses for an extended period of time.
Rogue traders are often blamed as individuals, but some of the blame has to be laid at the feet of their employers. As it is the clients’ money at risk, financial institutions have a responsibility to make sure no single employee can destroy that value. Many banks have internal audits and risk management professionals who must approve speculative positions before traders take them. When this double-checking function is absent or weakened, you end up with rogue traders.
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