Matt Levine’s Money Stuff: UBS FX Trades Were Too Good

UBS FX

When an investment bank sells a derivative to customers, the derivative will generally have a payoff graph explaining what the customer will get in various scenarios. But the generic payoff graph for the bank will look something like this:

If you sell clients something dumb, you will lose money. If you sell them something clever, you will make money. If you sell them something very clever, you will make a lot of money. If you sell them something too clever, you will make even more money, but then you will have to give it all back and ...