One of my trading rules goes unobserved

In the course of learning how to trade, I began to keep a list of rules, to help with my discipline.  These become the cardinal rules for the individual trader that creates the list.  As individual as any one brain and body combined, the rules are also unique, depending on what big discipline challenges that person has.  One of my top learnings in this process was provided to me by a fellow trader - if you don't understand the trade then you probably shouldn't take it.  Similarly, one of my trading mentors stated - I don't really care where you get in and where you get out, tell me why you did what you did - understand your trade.


So the recent news of civil charges of securities fraud against Goldman Sachs, and the associated documentation are interesting.  TI know very little about the entire structured credit business but can say that it is a generally held principle that the derivatives and swaps market became more and more complex, and fewer and fewer people understood these complexities.  And the posted email text, authored by Fabulous Fab(rice) Tourre, the Goldman executive at the center of the current allegations, clearly acknowledges that this trader, the Fabulous Fab himself did not understand the complexities of these instruments.  A trade misunderstood and now the truths might be told.  Or that's probably too optimistic.

"More and more leverage in the system, the whole building is about to collapse anytime now," Fabrice Tourre, 31, a Goldman Sachs vice-president who has been charged by the SEC, wrote in an e-mail to a friend in January 2007.

"Only potential survivor, the fabulous Fab[rice Tourre] . . . standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstruosities (sic)!!!"

Email Text extracted from this News Story