City traders who work in Investment Banks take a gamble on what ever their area is, which may be things like currencies or commodities, and they basically gamble on whether the prices will go up or down.
For example, if the trader thinks the price of oil is rising, from $75 a barrel, they might promise to buy oil at $75 in 3 months' time. If, right and oil hits $100, then he has made $25. If oil falls to $50, then he will have to pay the difference, $25. Or worse, it could fall to $25 and he's lost $50. This is what occurs but on a bigger scale. This happens very quickly in reality and decisions are made after a very short periods of deliberation. The reality is that individuals can make immense amounts of money or huge loses in moments. The back office is the function that checks how much the bank is gaining or losing in the day and are meant to be the whistle blowers when things go wrong, however this is not always the case.
Over the last 20 years there have been several high profile so called Rogue Traders, marketed as immoral, greedy, unruly pariah's. Nick Leeson is perhaps the most famous British export of the rogue trading variety. He managed to lose the bank over 1 billion pounds, which wiped out its reserves and led to the 230 year bank collapsing.Activities of investment banks and traders have become even more under the spot light after the devastating effects of the so called credit crunch and subsequent recession. The most recent city trader to have been accused of being a rogue trader was Kweku Adoboli a trader at the Swiss investment bank UBS, has been accused of losing around £1.3 billion over a three year period and hiding these losses probably with his knowledge of the back office. Although after the recession, more and more pressure was heaped among banks to have even tighter controls of their finances and bonus cultures; more work still needs to be done to protect the public and the economies wealth at large.
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