Vanity Fair published an explosive story Wednesday night asserting that unknown futures traders have made billions of dollars front-running Donald Trump’s statements. Anybody who hates Trump would love to love this story, which helps explain why people who should know better are lauding it.
The story is bullshit. (It was bullshit the first time around, too, but people seem to be paying more attention this time.)
Let’s start with the headline: “ ‘There Is Definite Hanky-Panky Going On’: The Fantastically Profitable Mystery of the Trump Chaos Trades.”
The quote in the headline comes from an anonymous “longtime CME trader” who also believes in the long-debunked conspiracy theory that al-Qaida “cashed in” by front-running the Sept. 11 attacks—that is, trading on the knowledge of an upcoming event—on international futures markets. The headline asserts the existence of “Trump chaos trades,” meaning traders making money by front-running market chaos in the wake of Trump statements, but the story adduces no evidence that any such Trump chaos trades actually exist. As for “fantastically profitable,” there’s similarly no evidence at all that anybody made any money here, let alone billions of dollars.
The article follows a simple MO: It looks at all the times that the market moved in the wake of a surprising Trump announcement or decision, and then finds the biggest trade that was made the previous day in the futures market. The article’s author, William Cohan, then implies, without any evidence, that the trade was done with the knowledge of the coming Trump statement.
In Cohan’s opening anecdote, for instance, “someone” shorted 120,000 e-mini futures on Sept. 13 of this year. That tale is followed up by another one where “someone” bought 82,000 futures on Sept. 10. The Sept. 13 trade took place before drones bombed Saudi oil infrastructure (something even Trump almost certainly didn’t know was going to happen); the second took place before the Chinese government announced it was lifting certain tariffs on American goods. (Again, it’s not clear that Trump knew the Chinese announcement was coming.)
Why does Cohan characterize the first deal as someone going short, and the second one as someone going long? Just because the market went down after the first trade and went up after the second. In reality, he could just as easily have characterized the two trades the other way—”someone” losing $180 million in the wake of the Sept. 13 trade, and “someone” else losing $190 million after Sept. 10. After all, every trade involves both a buyer and a seller.
What’s more, Cohan has no idea how long the positions were held. In order to make a profit, it’s not enough to buy before a certain event—you also have to then hold onto the position through the event happening, wait for the market to move in your favor, and then sell after the market has moved. Cohan provides no evidence of when any of these trades were unwound or whether they were unwound at a profit or a loss.
Cohan also has no idea what other trades the traders were doing at the time. Futures trades are often designed to hedge or offset positions in other markets. A gain in a futures position often just mitigates losses elsewhere.
Cohan doesn’t even do a simple check to see whether trades of this size are unusual, on a normal day. (Spoiler: They’re not.)
In order to provide evidence of insider trading, you need two key ingredients. You need to show that someone made a profit and you need to show that they had inside information. In this case, Cohan provides neither. He’s basically p-hacking: He’s saying that if the people doing these trades had been insider trading, then they would have been insider trading. Which doesn’t really get us very far.
Cohan also tends to ignore the more obvious explanations for what is going on. The biggest trade he talks about took place “in the last 30 minutes of trading on June 28”—which also happens to be the very end of the second quarter. Big trades always happen at the very end of the quarter; it would be more surprising if there wasn’t a big trade around then.
When Cohan talks about “the precision and timing of these trades, and the vast amount of money being made as a result of them,” he has no idea what he’s talking about. You can’t find “precision” when you only know one leg of a trade and you don’t know when or how it was unwound. And you certainly can’t know how much money was made as a result.
So while it might reinforce biases for people to believe that Trump or someone close to him has been insider trading, Cohan gives us no real reason to believe that it’s happening.