There are some common themes when it comes to large losses in finance - leverage kills. We cannot say that it is always the case, but a review of the biggest trading losses seems linked to excess leverage. Too much risk with a surprise event, and you have a recipe for losses. This will happen with funds and financials, and if we dig into corporate losses, we will find a link to leverage. What is surprising is that we haven’t had more large losses, given the spike in rates after the long period of low rates.
We need risk management to protect ourselves from our leveraged behavior.
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