“CFD brokers don’t really understand risk management or the flow of the business,” said Nick Leeson, the former derivatives trader who brought down Barings Bank with his unauthorised trades in 1990s. “They’re probably getting themselves involved in toxic, one-sided positions. That’s a story you can see repeated over many years.”“If you go back about 15 years to when crypto—particularly Bitcoin—was becoming the most traded product, you could already see that problem emerging. When all retail traders were looking to buy Bitcoin, the brokers were naturally short on Bitcoin. Many of them didn’t have a hedge or an effective hedging strategy, so they ended up losing money because they couldn’t get out of those trades.”Join IG, CMC, and Robinhood in London’s leading trading industry event!He further highlighted that he is sure many brokers are having the same problems with gold now, with its “one-direction rally for the past six months.”“There are also many very astute, experienced traders out there, and if they see an anomaly at one of the smaller brokers, you can be sure they’ll exploit it,” Leeson said.“The saying goes, 'the trend’s your friend,' but if you’re a broker, sometimes the trend isn’t your friend—especially when all your flow is one-directional.”“The Fear of Failure”Leeson is known for his infamous run at Barings Bank, which was then the United Kingdom's oldest merchant bank. He worked as a derivatives trader for Barings, executing and clearing transactions on the Singapore International Monetary Exchange (SIMEX).He made unauthorised speculative trades that initially generated large profits for Barings but soon began to cover up his losses by using one of the bank’s error accounts, which are typically used to correct mistakes made in trading.Following a rogue trading sprint, thus the name “Rogue Trader”, the losses in Barings’ error account ballooned to £827 million, twice Barings' available trading capital. He eventually had to spend over four years at Singapore prison for his mishaps.“My biggest fear was always the fear of failure,” Leeson recalled his days at the trading pit in Singapore, adding that he managed to continue as “the infrastructure was poor.”“It was badly set up,” he continued. “The breakdown was quite systemic.”“If you look at every area of the bank—from settlements and trade support to trading, accounting, risk management, compliance, and even the board of directors—nobody was asking the difficult questions or checking the things they should have been.”Leeson went rogue in the early 1990s, and since then, the trading infrastructure has undergone dramatic changes towards digitalisation. Although there are still gaps in the industry, he believes that risk management in financial institutions has matured significantly.“If you look at the financial world over the past five years, you still see failures—Macquarie Bank, FTX, Credit Suisse, which no longer exists. So, there are still problems within the industry, though mostly in niche areas.”The notoriety of Leeson was even resurrected in a movie titled “Rogue Trader”, which is based on his autobiography.“I’m Not Afraid to Ask Difficult Questions”He has now switched sides and joined Hedgx as an advisor. Founded by Domantas Mocevicius and Tahsin Haykal, who took the roles of Managing Directors, the company provides outsourced risk and dealing-desk infrastructure to forex and CFD brokers, as well as prop-trading firms.As a Non-Executive Advisor, Leeson will focus on Hedgx’s risk governance and strategic development.“It’s a very minor role at the moment,” Leeson said about his role at Hedgx. “There’ll be some involvement in business development, and of course, I’ll be looking at risk management—but I’m not getting involved in trading; I have no interest in that.”He elaborated that his focus in the company will be on risk management practices, how those areas are managed, and observing the business flow. “I’m not afraid to ask difficult questions,” he stressed. “If I see something I’m not comfortable with, I’ll raise it.”Hedgx believes that Leeson will strengthen its internal controls and public credibility.“Over the years, nobody has really found a 'golden bullet' solution that fixes everything,” Leeson stressed while explaining the risk management of the retail trading industry. “There will always be issues. You’ll always have people trying to scam or gain an unfair advantage.”“If you look back, even prime brokers and high-net-worth individuals used CFD brokers to get around certain rules or hide positions,” he added. “It happens, and I know some of those people personally—there’s nothing inherently wrong with it; it’s just part of how the system operates.”Mocevicius pointed out that small brokers often try to bring as much flow and as many clients as possible, and it is a major challenge for them. “They sometimes end up offering products or services they’re not fully prepared or equipped to handle,” he said. “A good example is the number of brokers now offering swap-free gold accounts. That’s ended up costing both large and small brokers a significant amount of money.”He also pointed out that even though smaller brokers have risk engines sourced from major bridge providers, they lack the expertise to utilise them properly. “Smaller brokers typically get much less favourable liquidity deals compared to large ones—their conditions are worse, the slippage from LPs is higher, and spreads are less competitive,” he continued. “All these inefficiencies—1% or 2% here and there—accumulate across the business.”Hedgx is also targeting prop trading firms, an industry struggling with risk management measures. According to Finance Magnates Intelligence, between 80 and 100 prop trading brands shut down in 2024. Although the reason behind those closures remains unknown, it can be assumed that risk management played a significant role.“Most of these prop firms don’t have an adequate risk management team,” said Haykal. “That’s mainly because of the background and experience of the people running them.”“Many of them come from affiliate marketing or social media—they know how to attract users and build visibility, but after that point, it’s like a rollercoaster. They don’t really understand what proper risk management means.”Mocevicius also pointed out that prop-centric risk management tools built into most CRMs have limited capabilities and primarily monitor two things: hedging traders, someone who might buy two challenges and take opposing positions on each, and IP tracking, which is used to detect account sharing.“AI Might Tell Me How Fantastic I Am”Meanwhile, many companies and technology providers swear by AI-based solutions, even in risk management. While these solutions definitely bring value, Leeson believes that “there always has to be human oversight.”“When you rely too heavily on anything—whether it’s an individual doing their job correctly or a piece of AI performing a task—there’s always the risk of failure,” he said. “You need expertise and human supervision to ensure everything is as safe and robust as possible.”“If you see something unusual, you need to ask the tough questions, and I’m not sure AI can do that… it might end up telling me how fantastic I am.”“There should always be a layer of scrutiny and oversight on top of any system, no matter how advanced it is,” he continued.In the Nick Leeson silks... pic.twitter.com/y556uodUUs— David Johnson (@davidjohnsonTF) October 29, 2025Indeed, there were many technology-driven trading desks, including high-frequency trading firms, which had software glitches, resulting in the loss of millions of dollars. Leeson even pointed out the case of JPMorgan’s Alpha Fund, one of their top-performing funds at the time, which malfunctioned badly.“It’s unrealistic to think that those further down the chain—the smaller firms and less experienced players—are somehow getting everything right. They’re not,” Leeson said. “They often lack the experience and expertise needed to manage those kinds of risks effectively.”When asked about the role of regulators around risk management, Leeson said that he has always believed that “it’s incumbent on the firm itself to have the strongest, most robust set of rules, policies, and controls possible.”“Regulators will always be there to provide the tramlines you need to operate within and to ensure compliance, but they won’t keep your business safe,” he added. “Relying on a regulator is dangerous—they’re always behind the curve, slow to react, and constantly trying to catch up.”Gold Trades “Very Different Today”During his trading days, Leeson mostly traded Nikkei 225 stock index futures and options. Now, however, many traders are chasing the volatility of new assets, such as cryptocurrencies. Although Bitcoin has attracted the attention of institutions, there are thousands of other smaller tokens, including those promoted by celebrities, sports personalities, and even the President and First Lady of the United States.“I’m very old, and my view is that Bitcoin will survive,” Leeson said, when asked about the future of cryptocurrencies. “I’m less certain about the others.”“There are so many pump-and-dump schemes out there—it’s quite shocking when you look under the surface of the industry. That kind of manipulation has existed for decades; people have been pumping and dumping stocks since I started in the market, and it still happens on smaller exchanges. It’s unpleasant, but I do believe Bitcoin is here for the long haul.”However, he clarified that he does not hold Bitcoin or Ethereum.Another popular asset in the current market that Leeson is familiar with is gold. The yellow metal recently peaked at around $4,300 only to correct from that level. Leeson pointed out that he “grew up in a market where gold traded between $250 and, at most, around $900.”“Gold remains a store of value, but the way it trades today is very different from how it traded in the past,” he continued. “Brokers need to adapt to this faster pace. The market moves extremely quickly now—the bid-offer spreads aren’t as reliable as they used to be. Six or seven months ago, you might move ten cents in 20 seconds; now, a dollar can move in a single second.”“That creates unique challenges, especially when hedging. The market can move so fast that it’s difficult to respond in real time.”This article was written by Arnab Shome at www.financemagnates.com.