The Shocking Trading Story That Caused Global Market Turmoil as Told by Jason Shapiro

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In this video, Jason Shapiro shares a trading story involving John Meriwether, who left Solomon Brothers to start hedge fund Long Term Capital Management (LTCM). John Meriwether believed he could leverage more capital and make bigger trades to make more money. Solomon Brothers replaced him with a professor from the London Business School, who was arguably the highest-paid guy in the city of London at the time. The professor explained to Shapiro that everyone can make money at times, as was the case when the euro was coming into existence, and all European interest rates would have to converge. Shapiro learned that traders were massively leveraging this trade and another similar trade, which involved borrowing US dollars at a low rate and switching them into Russian rubles to collect a high-interest rate. Ultimately, the trades didn't work out, and LTCM went bankrupt, causing global market turmoil. Shapiro's story offers great lessons about trading, risk management, and the market thought process.

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