Fat Finger Trades

“I almost fat fingered one!” is something I’ve heard a few times while standing beside a trading bullpen. A “Fat Finger Trade” refers to a trader accidentally hitting the wrong keys or hitting the right keys too many times when trying to place a trade on the market.

An example of a Fat Finger Trade

You want to buy 100 shares of Research in Motion at $75.00/share, but you accidentally enter in an order of 9100 shares at $75.00/share. One trade commits you to $7,500 of stock, the other commits you to $682,500. Whoops.

Fat Finger Trades Happen All The Time

There is no shortage of traders with stories of fat finger trades. Many have lost their jobs because of one fat fingered trade. Perhaps the most famous story of a Fat Finger Trade would be that of a trader in Japan who fat fingered a trade in a newly listed company. He meant to sell one solitary share of a company (J-COM) for 610,000 Yen. Instead he entered a trade to sell 610,000 shares for 1 Yen. What’s even more strange is that there were only 50,000 shares publicly listed in J-COM, but the exchange let the order process.

Fat Finger Trade Fallout

It is estimated that the loss incurred was about $225 million (USD). The Tokyo Stock Exchange was assigned 70% fault for allowing a trade that should not have occurred and the brokerage was assigned 30% fault for the fat fingered trade. The exchange was ordered to pay a big settlement to the brokerage and the head of the TSE resigned as a result of the embarrassment. It’s a good bet the actual trader wasn’t with the firm for long after that.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 13 comments
  • Guy G.

    Hey thanks.

    I always count a day a success when I learn something new.
    Well I have never, before today, heard the term ‘Fat Fingered Trade’
    I’m going to share it with others for sure, as it not only sounds cool, but the story about the Japanese trader is sadly amusing.

    Thanks for sharing,
    Guy

  • Silly (beginner) trader

    Preet, I just did this — TWICE — last week and need help. When the dollar hit par I wanted to buy a significant amount of currency in anticipation of buying a property (in US dollars) in Latin America. That’s a whole other story. While calculating online to see what rate my bank would give me, I finalized the transaction instead of canceling it by accident. Then, I did it again. Don’t ask. As you can imagine, this was quite an expensive mistake once the bank took its cut for the conversion. Now, I don’t want to let the money sit there as the Canadian dollar will likely go higher and want to exchange the money back. I’m thinking I will buy as much RBC stock as I can on the NYSE then turn around and sell on the TSE through my discount brokerage account online. But with the dollar fluctuating and the two stocks trading almost a dollar apart, I can figure out how this is going to shake out dollar wise. Will I lose less or more? Any insight?

  • Preet

    @Silly – I don’t know if it is likely that the CAD goes higher as I’m not in the predictions game. Having said that, if you buy RY in the US and then sell it in Canada you’ll have more transaction commissions to pay. You are exposed to currency fluctuations the longer you wait to convert to CAD. So one option would be to contact Knightsbridge FX and see if they can hedge your position. If you are still planning on buying that property denominated in USD they may be able to hedge out your currency exposure for less than the cost of placing two stock trades and then ultimately converting back to USD later to buy the property… Ask for Rahim.

  • Silly (beginner) trader

    Thanks Preet for turning me on to Knightsbridge. A slight drop in the CAD allowed me to sell USD and mitigate the losses incurred by my mistake. If I end up doing the foreign property purchase I will use them again. Easy and quick and my mind is now at ease (although my bank account took a small hit); the damage could have been much greater.
    Love the blog and appreciate your advice.

  • larry macdonald

    I think that Japanese company had a another reoccurrance of the fat finger trade
    http://www.ft.com/cms/s/0/571ede38-1b63-11df-838f-00144feab49a.html

  • Silly (beginner) trader

    Oops, meant slight increase is the CAD….duh. No more currency buying for me.

  • gene

    I agree, someone should have nullified that J-COM trade. Some time ago I entered an order for a limit of $14 when the stock was trading at $7. It had recently split 2:1 and my mind was sleeping when I entered the order. A nice fellow from RBC called me and told me he had cancelled the trade.

    I assume in a case like this, my order would have filled close to $7 anyway, assuming adequate liquidity. Retail investing seems different than what the wholesalers would deal with.

    Warren Buffett told an anecdote about a friend’s son who traded foreign markets or currencies. His job required him to wake up in the middle of the night, do some calculations based on quotes, execute huge trades and go back to bed. Buffett asked the guy about safety measures to ensure no gaffes were made, and the guy responded there were no measures in place. Buffett thought it was odd and funny that a sleep-addled trader was assumed to do calculations and make trades flawlessly.

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