Amaranth Advisors lost $6.6B in a week — betting on natural gas futures with 10:1 leverage

Amaranth Advisors, a multi-strategy hedge fund managing approximately $9 billion, suffered one of the largest trading losses in hedge fund history in September 2006. Trader Brian Hunter had built enormous positions in natural gas futures, betting on the spread between winter and summer contracts.

Hunter's positions were so large that they represented a significant share of the entire natural gas futures market. When natural gas prices moved against him — the winter-summer spread narrowed — the losses mounted rapidly. Amaranth lost approximately $6.6 billion in a single week, and the fund collapsed within days.

The case illustrated the danger of concentration risk: a single trader's positions in a single commodity, leveraged at roughly 10:1, created a bet that was too large for the market to absorb. When the trade went wrong, the fund could not unwind the positions without moving the market further against itself. Amaranth's risk management failed to limit Hunter's exposure, and the fund's investors lost most of their capital.