The Day Oil Went Negative, These Unlikely Traders Made $660M

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BTW. those Boys were already humple and quiet, but after the big win they went radio silent.

That's what I'm planning to do as well, when the time comes, and I encourage you to think about it. I don't see the benefit, talking about your wins.

๐Ÿ‘๏ธŽ︎ 40 ๐Ÿ‘ค๏ธŽ︎ u/FinallyWiser ๐Ÿ“…๏ธŽ︎ May 16 2021 ๐Ÿ—ซ︎ replies

If it was manipulation then what the hell is cnbc

๐Ÿ‘๏ธŽ︎ 17 ๐Ÿ‘ค๏ธŽ︎ u/db214 ๐Ÿ“…๏ธŽ︎ May 16 2021 ๐Ÿ—ซ︎ replies
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On April 20th, oil markets did something they never had before and they crashed, went into negative territory and closed the day at -$40. Meanwhile, in a place called Theydon Bois in Essex a group of nine traders lead by a guy called Cuddles made $660 million, over the course of a couple of hours. The price of oil has collapsed to a record low. We've never really seen anything like it. WTI this morning, down more than 35%. People maybe wouldn't have been so surprised if the oil price had fallen to zero. But the oil price went to -$38. It went far lower than anyone had expected. And so lots of people in the market were saying well, hang on, something else is going on here. A couple of months later, I started to get wind through a kind of network of sources that a tiny firm in the outskirts of London had made a huge amount of money that day and potentially had some part to play in what happened. The information we got was that nine traders at Vega Capital London had made in the region of $660 million in one day. As a group, I think they made as much money in one day as Apple makes from its international sales in one day. I mean, it's an insane sum of money. Did they pull off a fantastic trade? Did they predict the way the market was moving and get it absolutely right? Or was there something else going on and had they actually done something that breached market rules in a bid to sort of push the market? And that investigation is ongoing. So Paul Commins is a trader who cut his teeth in the pits in the 80s and 90s when everyone had a nickname, his was Cuddles. If you can imagine, that was a very sort of cut-throat type of world where people are doing you know, hundreds of thousands and millions of dollar trades by shouting at each other. Get five and a half! Giving hand signals and then sort of scrawling on scraps of paper. The culture of the trading pits in London was very influenced by the working class guys who became traders there. They weren't like the city bankers that had gone before them, they weren't usually Oxford or Cambridge, you know, they didn't wear Savile Row suits. They were ordinary working guys who happened to have a talent for trading and a lot of them came from Essex. I think it was 400 traders in the pits and Cuddles, in his you know, oil and gas pit was described to us as amongst the top three you know, in amongst that, was very successful and made you know, very large amounts of money as a young man, but inevitably, mechanization and the arrival of electronic markets was the kind of death knell for the pits and in 2005, the IPE closed down. And when the pits shut down, a lot of the traders who worked there lost their jobs or quit or went to work for financial institutions, but Paul Commins decided to start his own trading collective out in Essex. Some of them are ex-pit guys cut from the same cloth as him, lots of them are actually sort of, in their twenties and they're, his, you know, drinking buddies son. Or they're his own kid's friends from football. You know, they're young lads, hungry and ambitious and he brings them into the fold. And fairly shortly, he's got you know, maybe a dozen or so traders that, they're independent, let's be clear but they're all part of this collective. Yeah, I'll let Liam deal with Essex. I am from Essex so I feel like I'm free to, you know, get into this. Sweet, as they say. If you are to ask someone in Britain how they would imagine an Essex person, they would say someone who's maybe slightly flamboyant, with a sort of Cockney accent, Guy Richie style accent. You know, not afraid to splash the cash, but is probably pretty bright and has done well for themselves. Don't even make sense, does it? But, you know, these guys, they drove around very nice Rolls Royces and Bentleys, they went to places like Marbella on holiday. Theydon Bois is a very wealthy place. You have to have considerable income to be able to afford to live in that village. It's a really nice place to live and it's 20 minutes tube ride away from the city. Earlier in the summer, we have this lead, which is that there's this tiny firm called Vega Capital London, and they were the biggest winners from the biggest oil crash in history. You know, anyone that covers market schemes is going to be surprised about that. You know, you're thinking your BP's of the world, or your Glencore's, but it's this tiny firm. And one of the big challenges that we had was actually finding out who worked with Vega Capital. It wasn't immediately obvious, and at first we had absolutely no idea. If you go to the Vega Capital website, it says it's under construction. If you do basic online searching, it's very difficult to find anyone who's publicly connected to the company. So, inevitably, we were incredibly curious at this point. Like, who the hell are these people? The more reporting we did, the more it became clear that this group were connected socially as well as professionally. They went to weddings together, they played golf together, they would go on holiday together. We found out that a number of them were members of the West Ham Supporter's Club in London. A few of them started companies together. So you could see all the connections between them and start to see a distinct group emerging. And it really just was this kind of shock, that, you know, this wasn't just like a hedge fund, or a firm you've never heard of. This was actually a group of buddies, who all had the same experience on this day and had all made a huge amount of money. So if you're an oil trader, there's a number of different ways you can trade, and probably the most popular is WTI Futures Contract. And it's basically a contract that says I'm gonna buy a thousand barrels of oil from you at this point in the future, or I'm going to sell a thousand barrels of oil to you at this point in the future. It's actually just a financial contract to gamble on, to predict whether oil was gonna go up or down. On the 20th of April in Essex, there had been signals for a while that this was going to be an exceptional day in oil markets. And we know that some of them arose early and started their trading in the early hours of the morning while it was still dark outside. Essentially what they were doing is buying contracts that gave them an obligation to buy oil at whatever the price ended up at 2:30pm. So they're basically placing a bet that oil's going to fall throughout the day. But they're simultaneously selling lots of oil as well, and whether they make a profit, how much profit they make is the difference between what they buy the oil for and what they sell the oil for. Now, of course, we now know throughout April 20th the price dropped and dropped. So, this is going very well for them. You know, they are committed to selling oil at these prices and the prices are continuing to fall which means they're gonna be able to offset it and buy oil at cheaper, at the end of the day. Now, once it gets to kind of 1:30, 2pm, that's when things start to get really interesting. Suddenly there's a kind of influx of buyers and sellers, you know, as desperation increases in the market and trading volumes go up. Now at 2:08pm exactly, something bizarre and unprecedented happened, which is that oil passes into negative territory. And it fell to a record level of -$38. We've never seen anything like it, period, in terms of the contraction of the global economy. That huge gulf between what they were buying the oil for and what they were selling it for enabled them to make more money than they ever thought possible. So their profit was the difference between -$37 and all of these positive numbers on every contract they sold. The price of crude briefly hit -$37 a barrel. For one group of traders operating from a small office, it was a very, very profitable day. It's important to remember that this had never happened before, in the history of oil trading. No-one could've predicted it. I can't think of another example of where you enter a trade and you get paid on both sides, you get paid both to sell and to buy. You know, it's unthinkable. One thing we know about the Cuddles trading arcade is that, they were very comfortable taking large risks and, you know, you have to be clear, this was a large risk. Yeah, we spoke to oil traders, both people that know these guys and people that don't, and they all say that this is, you know, incredibly risky. And that's actually what stops a lot of oil traders doing trading like this, they simply aren't willing to stomach the risk. But Cuddles and his friends were. So when the kind of final calculations came down, the group of the nine most profitable traders made $660 million, or thereabouts between them. I mean if you can imagine, I think three or four of them made in excess of $100 million each. One of the astonishing things about this trade is that two of the individuals who made more than $100 million in a single day were in their 20s. One of them was 22 years old, you know, only a few years earlier he'd been posting on his social media about doing teenage stuff with his mates in town, and going to see girls and rap music. And here he is a few years later, making $100 million in a single day's trading. When me and Liam discovered that, we were just - we couldn't believe it, we couldn't believe what we were seeing. Oil trading is a zero sum game. Anytime you're making money as an oil trader, someone else is losing it. Amongst the biggest losers were the investors in this Chinese fund, Crude Oil Treasure Fund. There were thousands of them, and they lost everything. Lots of people had put their savings into oil funds, they lost money that day. Big banks and brokers who sort of stand in the middle of trading parties, they lost money that day. And another interesting thing is that oil producing countries like Kuwait or Canada, they sell oil as an average of the WTI closing price over the preceding month. So the fact that one of those numbers in that average was -$37 meant if you can imagine, countries like Saudi Arabia and Kuwait potentially lost a couple of dollars on every single barrel of oil they sold that month. Vega Capital's traders made such an extraordinary sum of money, that it was inevitable there would be some scrutiny of what they did. But it wasn't just the sums of money they made, in the vital half an hour before the settlement price was set, they were by far the biggest sellers of oil futures in the market, which is an incredible thing to think about, when you consider that the other participants in that oil market are gonna be the world's biggest banks, you know, oil majors, BP and Shell, and here you have a group of nine guys in Essex who were having this significant influence over a global market for oil. I mean, I think you have to assume that if these guys had made $7 million or $10 million, they probably would be celebrating in Essex right now, but the fact that they made closer to $700 million has meant that they are facing understandable scrutiny. We wrote individually to all the Vega traders who did exceptionally well that day, and we got a letter in response from a law firm representing the group, and the law firm was at pains to point out number one, they haven't been accused of any wrongdoing, that they all traded independently and separately, and they'd basically all made up their own minds that this was what was going to happen in oil markets based on publicly available knowledge, and decided to execute this trade. What I love about these stories, is there's a real variance of opinion and some people will look at what happened and think "that must be dodgy, they all traded at the end of the day, they all made a huge amount of money while all these people lost, that's shocking". But lots of people say, these guys are at an acute disadvantage. They're in a market that's inhabited by, you know, huge, technology-driven, funds and firms and oil giants that have got all the advantages in the world and when you get a bunch of Essex geezers, who essentially beat the market and find a way to make a huge amount of money, they should get a pat on the back really, because that's the dream. Since this happened, a lot of the guys have stopped trading the monthly settlements that they'd done so well at in the past. Several of them have set up new companies, they've essentially gone very quiet, you know, any kind of social media presence they had is kind of closed down. By all accounts they're, you know, waiting this out. It's certainly too early to try and predict how the regulatory investigations are going to pan out, you know, we just don't know. There's a number of potential outcomes for these guys, you know, potential punishments if there are any findings of manipulation against Vega, or anyone affiliated with it, might be, you could be fined, you could be banned from trading and you know, in the most extreme cases there have even been criminal prosecutions in the past of people who have been found to have been manipulating the settlement and misconduct related to trader settlement. There are other outcomes too. You know, one obvious one is gonna be that they're able to walk away from this life-changing trade with all the money that they made and celebrated as heroes in the trading community, you know, they'll go down as legends.
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Channel: Bloomberg Quicktake
Views: 861,534
Rating: 4.9131985 out of 5
Keywords: News, bloomberg, quicktake, business, bloomberg quicktake, quicktake originals, bloomberg quicktake by bloomberg, documentary, mini documentary, mini doc, doc, us news, world news, finance, science, storylines, oil, markets, trading, UK, oil crash, gas shortage
Id: F7_WXUMFM_w
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Length: 14min 0sec (840 seconds)
Published: Tue May 11 2021
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