馃攳
The Day Oil Went Negative, These Unlikely Traders Made $660M - YouTube
Channel: Bloomberg Quicktake: Originals
[2]
On April 20th, oil markets
[4]
did something they never had before
[5]
and they crashed, went
into negative territory
[9]
and closed the day at -$40.
[11]
Meanwhile, in a place
called Theydon Bois in Essex
[16]
a group of nine traders
lead by a guy called Cuddles
[20]
made $660 million, over the
course of a couple of hours.
[24]
The price of oil has
collapsed to a record low.
[27]
We've never really seen anything like it.
[29]
WTI this morning, down more than 35%.
[32]
People maybe wouldn't
have been so surprised
[34]
if the oil price had fallen to zero.
[36]
But the oil price went to -$38.
[39]
It went far lower than
anyone had expected.
[41]
And so lots of people in
the market were saying
[43]
well, hang on, something
else is going on here.
[47]
A couple of months later,
I started to get wind
[49]
through a kind of network of sources
[51]
that a tiny firm in
the outskirts of London
[56]
had made a huge amount of money that day
[59]
and potentially had some part
to play in what happened.
[63]
The information we got
was that nine traders
[65]
at Vega Capital London had made in the
[67]
region of $660 million in one day.
[70]
As a group, I think they
made as much money in one day
[72]
as Apple makes from its
international sales in one day.
[75]
I mean, it's an insane sum of money.
[77]
Did they pull off a fantastic trade?
[79]
Did they predict the way the market
[80]
was moving and get it absolutely right?
[82]
Or was there something else
going on and had they actually
[84]
done something that breached market rules
[88]
in a bid to sort of push the market?
[90]
And that investigation is ongoing.
[107]
So Paul Commins is a trader
[110]
who cut his teeth in the
pits in the 80s and 90s
[114]
when everyone had a
nickname, his was Cuddles.
[119]
If you can imagine,
that was a very sort of
[121]
cut-throat type of world
where people are doing
[124]
you know, hundreds of thousands
[126]
and millions of dollar trades
by shouting at each other.
[130]
Get five and a half!
[131]
Giving hand signals and then sort
[133]
of scrawling on scraps of paper.
[136]
The culture of the trading pits in London
[138]
was very influenced
[140]
by the working class guys
who became traders there.
[144]
They weren't like the city bankers
[145]
that had gone before
them, they weren't usually
[147]
Oxford or Cambridge, you
know, they didn't wear
[150]
Savile Row suits.
They were ordinary working guys
[152]
who happened to have a talent for trading
[154]
and a lot of them came from Essex.
[159]
I think it was 400 traders in the pits
[161]
and Cuddles, in his you
know, oil and gas pit
[163]
was described to us as
amongst the top three
[166]
you know, in amongst that,
was very successful
[168]
and made you know, very
large amounts of money
[170]
as a young man, but
inevitably, mechanization
[174]
and the arrival of electronic markets
[176]
was the kind of death knell for the pits
[179]
and in 2005, the IPE closed down.
[182]
And when the pits shut down,
[184]
a lot of the traders who worked there
[186]
lost their jobs or quit or went to work
[188]
for financial institutions,
but Paul Commins
[191]
decided to start his own
trading collective out in Essex.
[198]
Some of them are ex-pit guys
[200]
cut from the same cloth as him,
[201]
lots of them are actually
sort of, in their twenties
[204]
and they're, his, you
know, drinking buddies son.
[208]
Or they're his own kid's
friends from football.
[211]
You know, they're young
lads, hungry and ambitious
[214]
and he brings them into the fold.
[215]
And fairly shortly, he's got you know,
[218]
maybe a dozen or so traders that,
[220]
they're independent, let's be clear
[222]
but they're all part of this collective.
[233]
Yeah, I'll let Liam deal with Essex.
[236]
I am from Essex so I feel like I'm free
[238]
to, you know, get into this.
[240]
Sweet, as they say.
[242]
If you are to ask someone in Britain
[244]
how they would imagine an Essex person,
[246]
they would say someone who's
maybe slightly flamboyant,
[250]
with a sort of Cockney accent,
Guy Richie style accent.
[254]
You know, not afraid to splash the cash,
[256]
but is probably pretty bright
[258]
and has done well for themselves.
[259]
Don't even make sense, does it?
[260]
But, you know, these guys,
[262]
they drove around very nice
Rolls Royces and Bentleys,
[266]
they went to places like
Marbella on holiday.
[271]
Theydon Bois is a very wealthy place.
[274]
You have to have considerable income
[276]
to be able to afford to
live in that village.
[278]
It's a really nice place to live
[279]
and it's 20 minutes tube
ride away from the city.
[286]
Earlier in the summer, we have this lead,
[288]
which is that there's this tiny firm
[290]
called Vega Capital London,
[292]
and they were the biggest winners
[294]
from the biggest oil crash in history.
[297]
You know, anyone that
covers market schemes
[298]
is going to be surprised about that.
[300]
You know, you're thinking
your BP's of the world,
[302]
or your Glencore's, but
it's this tiny firm.
[304]
And one of the big challenges that we had
[306]
was actually finding out who
worked with Vega Capital.
[309]
It wasn't immediately obvious,
[310]
and at first we had absolutely no idea.
[312]
If you go to the Vega Capital website,
[314]
it says it's under construction.
[315]
If you do basic online
searching, it's very difficult
[318]
to find anyone who's publicly
connected to the company.
[321]
So, inevitably, we were
incredibly curious at this point.
[323]
Like, who the hell are these people?
[325]
The more reporting we did,
[326]
the more it became clear that
this group were connected
[329]
socially as well as professionally.
[330]
They went to weddings together,
they played golf together,
[333]
they would go on holiday together.
[335]
We found out that a number
of them were members
[337]
of the West Ham
Supporter's Club in London.
[340]
A few of them started companies together.
[342]
So you could see all the
connections between them
[344]
and start to see a
distinct group emerging.
[347]
And it really just was this kind of shock,
[349]
that, you know, this wasn't
just like a hedge fund,
[352]
or a firm you've never heard of.
[353]
This was actually a group of buddies,
[354]
who all had the same
experience on this day
[356]
and had all made a huge amount of money.
[362]
So if you're an oil trader,
[364]
there's a number of
different ways you can trade,
[365]
and probably the most popular
is WTI Futures Contract.
[369]
And it's basically a contract that says
[372]
I'm gonna buy a thousand
barrels of oil from you
[375]
at this point in the future,
[376]
or I'm going to sell a
thousand barrels of oil to you
[378]
at this point in the future.
[381]
It's actually just a financial contract
[384]
to gamble on, to predict
[385]
whether oil was gonna go up or down.
[388]
On the 20th of April in Essex,
[391]
there had been signals for a while
[393]
that this was going to
be an exceptional day
[394]
in oil markets.
[395]
And we know that some of them arose early
[398]
and started their trading in
the early hours of the morning
[400]
while it was still dark outside.
[402]
Essentially what they were doing
[404]
is buying contracts that gave
them an obligation to buy oil
[409]
at whatever the price ended up at 2:30pm.
[413]
So they're basically placing a bet
[415]
that oil's going to
fall throughout the day.
[417]
But they're simultaneously
selling lots of oil as well,
[420]
and whether they make a profit,
how much profit they make
[422]
is the difference between
what they buy the oil for
[425]
and what they sell the oil for.
[426]
Now, of course, we now
know throughout April 20th
[429]
the price dropped and dropped.
[431]
So, this is going very well for them.
[433]
You know, they are committed
to selling oil at these prices
[436]
and the prices are continuing to fall
[438]
which means they're gonna
be able to offset it
[440]
and buy oil at cheaper,
at the end of the day.
[444]
Now, once it gets to kind of 1:30, 2pm,
[446]
that's when things start
to get really interesting.
[452]
Suddenly there's a kind of
influx of buyers and sellers,
[456]
you know, as desperation
increases in the market
[458]
and trading volumes go
up. Now at 2:08pm exactly,
[462]
something bizarre and
unprecedented happened,
[465]
which is that oil passes
into negative territory.
[469]
And it fell to a record level of -$38.
[472]
We've never seen anything like it, period,
[473]
in terms of the contraction
of the global economy.
[477]
That huge gulf between what
they were buying the oil for
[480]
and what they were selling it for
[482]
enabled them to make more money
[483]
than they ever thought possible.
[484]
So their profit was the
difference between -$37
[489]
and all of these positive numbers
[491]
on every contract they sold.
[492]
The price of crude
briefly hit -$37 a barrel.
[496]
For one group of traders
operating from a small office,
[498]
it was a very, very profitable day.
[500]
It's important to remember
[501]
that this had never happened before,
[502]
in the history of oil trading.
No-one could've predicted it.
[505]
I can't think of another example
[506]
of where you enter a trade and
you get paid on both sides,
[510]
you get paid both to sell and to buy.
[513]
You know, it's unthinkable.
[519]
One thing we know about
the Cuddles trading arcade
[522]
is that, they were very
comfortable taking large risks
[525]
and, you know, you have to be
clear, this was a large risk.
[529]
Yeah, we spoke to oil traders,
[531]
both people that know these
guys and people that don't,
[533]
and they all say that this is,
you know, incredibly risky.
[536]
And that's actually what
stops a lot of oil traders
[538]
doing trading like this,
[539]
they simply aren't willing
to stomach the risk.
[542]
But Cuddles and his friends were.
[544]
So when the kind of final
calculations came down,
[547]
the group of the nine most profitable traders
[551]
made $660 million, or
thereabouts between them.
[554]
I mean if you can imagine,
I think three or four of them made
[558]
in excess of $100 million each.
[560]
One of the astonishing
things about this trade
[563]
is that two of the individuals
[564]
who made more than $100
million in a single day
[567]
were in their 20s. One
of them was 22 years old,
[570]
you know, only a few years earlier
[572]
he'd been posting on his social media
[574]
about doing teenage stuff
with his mates in town,
[577]
and going to see girls and rap music.
[579]
And here he is a few years
later, making $100 million
[582]
in a single day's trading.
[584]
When me and Liam discovered
that, we were just -
[587]
we couldn't believe it,
[588]
we couldn't believe what we were seeing.
[594]
Oil trading is a zero sum game.
[596]
Anytime you're making
money as an oil trader,
[598]
someone else is losing it.
[599]
Amongst the biggest
losers were the investors
[601]
in this Chinese fund,
Crude Oil Treasure Fund.
[604]
There were thousands of them,
and they lost everything.
[607]
Lots of people had put
their savings into oil funds,
[610]
they lost money that day.
[612]
Big banks and brokers who
sort of stand in the middle
[614]
of trading parties, they
lost money that day.
[617]
And another interesting thing
[618]
is that oil producing countries
like Kuwait or Canada,
[622]
they sell oil as an average
of the WTI closing price
[627]
over the preceding month.
[629]
So the fact that one of
those numbers in that average
[631]
was -$37 meant if you can imagine,
[634]
countries like Saudi Arabia and Kuwait
[636]
potentially lost a couple of dollars
[638]
on every single barrel of
oil they sold that month.
[644]
Vega Capital's traders made
[645]
such an extraordinary sum of money,
[647]
that it was inevitable
there would be some scrutiny
[649]
of what they did.
[651]
But it wasn't just the
sums of money they made,
[653]
in the vital half an hour
[654]
before the settlement price was set,
[656]
they were by far the biggest
sellers of oil futures
[659]
in the market, which is an
incredible thing to think about,
[662]
when you consider that
the other participants
[664]
in that oil market are gonna
be the world's biggest banks,
[666]
you know, oil majors, BP and Shell,
[669]
and here you have a group
of nine guys in Essex
[671]
who were having this significant influence
[673]
over a global market for oil.
[675]
I mean, I think you have to assume that
[677]
if these guys had made $7
million or $10 million,
[681]
they probably would be
celebrating in Essex right now,
[684]
but the fact that they
made closer to $700 million
[687]
has meant that they are facing
understandable scrutiny.
[691]
We wrote individually
to all the Vega traders
[695]
who did exceptionally well that day,
[697]
and we got a letter in
response from a law firm
[700]
representing the group,
[701]
and the law firm was at pains to point out
[704]
number one, they haven't been
accused of any wrongdoing,
[706]
that they all traded
independently and separately,
[711]
and they'd basically all
made up their own minds
[713]
that this was what was going
to happen in oil markets
[716]
based on publicly available knowledge,
[718]
and decided to execute this trade.
[722]
What I love about these stories,
[723]
is there's a real variance of opinion
[726]
and some people will look at what happened
[728]
and think "that must be dodgy,
[729]
they all traded at the end of the day,
[731]
they all made a huge amount of money
[733]
while all these people
lost, that's shocking".
[735]
But lots of people say,
[737]
these guys are at an acute disadvantage.
[739]
They're in a market that's
inhabited by, you know,
[742]
huge, technology-driven,
funds and firms and oil giants
[748]
that have got all the
advantages in the world
[750]
and when you get a bunch of Essex geezers,
[752]
who essentially beat the market
[754]
and find a way to make
a huge amount of money,
[757]
they should get a pat on the back really,
[758]
because that's the dream.
[764]
Since this happened,
a lot of the guys have
[766]
stopped trading the monthly settlements
[768]
that they'd done so well at in the past.
[770]
Several of them have set up new companies,
[773]
they've essentially gone
very quiet, you know,
[775]
any kind of social media presence they had
[777]
is kind of closed down.
[779]
By all accounts they're,
you know, waiting this out.
[783]
It's certainly too
early to try and predict
[785]
how the regulatory investigations
are going to pan out,
[788]
you know, we just don't know.
[790]
There's a number of potential
outcomes for these guys,
[793]
you know, potential punishments
if there are any findings
[796]
of manipulation against Vega,
or anyone affiliated with it,
[799]
might be, you could be fined,
[801]
you could be banned from
trading and you know,
[804]
in the most extreme cases
[805]
there have even been criminal
prosecutions in the past
[808]
of people who have been found to have been
[811]
manipulating the settlement
[813]
and misconduct related
to trader settlement.
[817]
There are other outcomes too.
You know, one obvious one
[819]
is gonna be that they're able to walk away
[821]
from this life-changing
trade with all the money
[824]
that they made and celebrated as heroes
[827]
in the trading community, you know,
[828]
they'll go down as legends.
Most Recent Videos:
You can go back to the homepage right here: Homepage