Lessons Learned from a Drunk Commodity Trader

Do you remember that day back in June of 2009 when crude oil suddenly spiked by $1.50? Chances are that you probably don’t, but don’t feel too bad, the trader responsible for the movement has no recollection either. There are many things that one should refrain from doing while under the influence of alcohol, and we can now add commodity trading to the list. Yes, if you can believe it or not, a trader got so drunk three years ago, that he executed a massive position and had absolutely no memory of doing so upon awakening [for more commodity news and analysis subscribe to our free newsletter].

His name is Steve Perkins and he managed to complete one of the biggest trades in the crude oil market, only the levels of alcohol in his body prevented him from remembering the event. The price spike in crude oil had been under investigation by the Financial Services Authority (FSA), but the details were only recently made public. On the night of June 30th 2009, Perkins, a senior broker at PVM Oil Futures, had a few too many drinks and decided it was time to trade. And trade he did, as he somehow spent $520 million while under the influence. “Between the hours of 1:22 am and 3:41 am, Mr Perkins gradually bought 69 percent of the global market, whilst driving prices up from $71.40 to $73.05, by bidding higher each time” writes James Burgess.

Upon awakening with what I can only imagine was the world’s worst hangover, an admin clerk inquired as to why on earth Perkins had purchased 7 million barrels of oil throughout the night; he had no knowledge of such event. At 6:30 on the morning of the 30th, Perkins sent in a note that he would be unable to make it to work, but the damage had already been done. By the time the company had realized that the trades were not authorized by any clients, the losses had totaled to $9.7 million. Perkins eventually had his license revoked for five years and was forced to pay a fine of over 72,000 pounds [see also How To Lose Money Investing In Commodities].

While the story may be laughable at first, it illustrates the point that commodity trading is dangerous enough on its own. Adding alcohol into the mix will only exacerbate things. A rogue trader (which we have seen all too often) can successfully manipulate the market if they have the buying power to do so. That is one of the main reasons that it is stressed that commodity investors keep tight stop-losses and keep a close eye on their positions, as this is not the first time that a major asset has been manipulated by a wealthy individual or entity. So have a good laugh but always remember that commodity futures trading should only be left to the most responsible and well-educated traders, but should be especially avoided by those who have a love for their booze.

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Disclosure: No positions at time of writing.