Losing £10 million in a day isn’t something ordinary, right? As a trader, this is a big loss that will take a miracle to recover from. I have had many surprises including losses and a low S&P 500 index, but none have been as crazy as this scenario that I am about to share with you.
One big lesson I have learned with stock trading is that you should not count your chickens before they hatch; you could be having a good day and then boom! Your investment account plummets in value.
This day is memorable to me. Everything looked normal, and even with an understanding of the S&P 500 floor volatility at the back of my mind, I did not think that the unimaginable could happen then.
The Day Before
I had a great day before my fateful day — smooth and profitable trading, smiling all the way to the bank, fewer curses, and everything good that you can imagine.
I am an experienced trader who has been in the market for years, specializing in derivative instruments. So, I decided that the following day I would enter into a variance swap position linked to the S&P 500, a popular index representing the performance of the US stock market. Little did I know the fate awaiting me!
The Market Failure
As I woke up to prepare to go and fight with the beasts of volatility, nothing looked out of the ordinary. I never knew that this would be the day I would forever say that I lost £10 million. Otherwise, I would have decided to go out fishing.
As soon as I logged in, the unforeseen started to happen. The market started to drop, and my variance swap position became increasingly exposed to extreme volatility. The sudden and severe fluctuations in the S&P 500 market floor led to significant losses, amplifying the impact on my portfolio. Within hours, the £10 million I had invested was reduced to a mere fraction of its initial value.
A Struggle in Vain
With shaking hands and lost hope, I frantically tried to salvage what I could from the wreckage. This included multiple haphazard and impulsive trades as I was trying to recover from the situation or at least stop further losses. Unfortunately, I realized that the entire market was in panic and that liquidity was drying up faster than anyone could stop it.
The end was what you’re all thinking right now. The market reached its circuit breaker limit, and trading was halted for the day. What a sad day for me and others.
Lessons Learnt
This is my story; it is how I lost £10 million in a day, or should I say in hours? It taught me some big lessons, and I think it is worth it to share them here.
One, risk management is very important in trading, especially when dealing with the S&P 500 market. Had I set clear risk limits and stop-loss orders and adhered to them, maybe I would be talking of lesser losses.
Two, I should have maintained emotional discipline during the turbulent event to avoid panic and impulsive decisions.
Finally, professional advice is essential. I should seek it in advance every time I could face volatile trades.
Conclusion
Now you know how I lost £10 million in a day. Such a devastating day that triggers jitters in my body every time I remember it. But it is worth sharing so that I can help many people who are just getting started with stock trading. Be warned!
Disclaimer: This content does not necessarily represent the views of IWB.