Fat finger error in financial markets refers to keyboard entry or mouse click mistakes that place orders on a much larger scale than intended, at an incorrect price or wrong stock, among other entry errors. Trading firms’ automated systems can detect and cancel such orders, especially those that exceed the stock available in the market.
While fat finger errors are usually harmless, they can negatively impact the market. For instance, when a trader mistakenly enters an order to sell a million shares instead of a thousand, it can be executed with any buy order at the bid price, leading to a significant impact.
To prevent such errors, brokerage firms, investment banks, and hedge funds set up filters that alert traders to entries beyond the usual market parameters or entirely prevent erroneous orders from being placed. U.S exchanges, including NYSE, NASDAQ, and AMEX, also require reporting of such trades within thirty minutes of execution.
What is a fat finger error in the financial market?
A fat-finger error refers to any keyboard entry or mouse click mistake made when placing an order in financial markets such as the stock or Forex market.
How can fat finger errors be prevented?
Trading firms can set up filters on their trading platforms that alert traders to entries outside of typical market parameters or prevent erroneous orders from being placed.
What is the impact of fat finger errors?
Fat finger errors can negatively impact the market, especially when they result in significant stock trade execution errors.
Fat finger errors in financial markets are common occurrences that can have a significant impact on the market; therefore, it is vital to set up systems to prevent such errors. This protects both the trader and the integrity of the market.