Fear of losing drives traders to the edge

By Gavin Haycock and Emily Chasan

LONDON/NEW YORK (Reuters) - How often have you sat on losses, in the hope that fortune will shine and turn your shortfalls into gains?

It is a trait in all of us, say those who study trading.

As the probe into what led to a $7 billion loss by a junior employee on the equities derivatives desk at French bank Societe Generale intensifies, everyone wants to know how a trader could allow such losses to spiral.

"It is human nature not to take a loss and that is simply because once you take a loss you kind of admit that it's failed, it's a disaster, it's over," said Jack Schwager, who interviewed traders around the world for his "Market Wizards" books.

Schwager said investors who found themselves trading through black holes often felt convinced they could find a way to get back into profit, no matter how long the odds were.

"As long as you are not (booking) a loss you can kind of convince yourself there is still hope," said Schwager, who is also a portfolio manager with UK-based funds group Fortune.

"It doesn't really make a difference if it is ten million, a hundred million, one billion or seven billion because once it gets really bad it is the same outcome for the trader," he said.

The stocks derivatives scam which has led to 31-year-old Jerome Kerviel's face on newspapers across Europe has reminded anyone with an interest in the integrity of markets that no matter how many checks, there is no escaping human frailty.