Financial Edgework and the Persistence of Rogue Traders

Abstract

ABSTRACT This work explores financial edgework by professional speculative traders as an explanation for the persistence of rogue trading in financial markets. The article joins in the scholarly application of “edgework,” the social psychological study of voluntary risk, to speculative trading. The discussion focuses on the origins and persistence of that subset of behavior wherein the trader knowingly creates the condition in which he or she endangers the brokerage house that employs them and even, at times, threatens the public's perception of the integrity of the securities industry. Going over the edge between risk taking and unauthorized rogue trading is explained by looking at five inducements to escalate risk taking provided in the securities industry. This examination of financial edgework demonstrates how and, to a lesser degree, why rogue trading is a result of the security industry's pursuit of and desire to capitalize upon yet not publicize an occupational culture stressing a “risk‐and‐win” ethos.