Trading with ‘Beer Goggles’ On

There’s a perception in popular culture that traders are party animals. Films like the Wolf of Wall Street have glamorised the idea of financial professionals working hard and partying even harder.

While this may be the case in some situations, it’s perhaps not the best idea to mix drinking and trading!

Alcohol is widely known to impair cognitive ability, leading to poor decision making, memory impairment, confusion and even (in some cases) black-outs.

Without the ability to control your actions in the way you normally would, your trading account is not likely to fare very well!

Stephen Perkins learned this the hard way. Although he was a broker rather than a trader, accessing the market while drunk caused him and his firm to lose a large sum of money.

In June 2009, oil traders got a shock when the price of Brent suddenly jumped $1.65 from $71.40 to $73.05. This sort of move doesn’t happen during the night unless there is a major fundamental shift.

In the days leading up to the trades, Steve Perkins had been drinking heavily at a company golf weekend. As Monday came around he continued to drink until he blacked out.

Perkins worked for PVM Oil Futures which is a broker that does not undertake proprietary trading. His job is to execute trades on behalf of his clients with authorisation.

On the Monday, he received an authorised order from one of his clients while working at home on his laptop. However, he continued to open orders which were unauthorised.

He gradually edged up the price of Brent Oil by bidding higher each time. His trading was contributing 69% of the global market volume.

During Monday evening in a space of a few hours he bought 7 million barrels of crude oil worth $520 million. That’s enough to supply the UK for 4.5 days.

By the time his employer had realised what had happened in the morning, PVM had incurred losses of almost $10 million as the market reversed.

Perkins lost his trading licence for five years and fined $116,000.

The investigation also showed he was able to trade huge volumes with very little cash up front and no position limit. This exposed how easy it was for a single broker under the influence to cause disruption in the market.

PVM reported a loss of $7.6 million that year.

When Perkins was fined, the FSA said he was “an extreme risk to the market when drunk”.

Although you may not be a risk to the market, you are definitely a risk to your own account while under the influence. Don’t drink and trade!