Fat Finger Trade

Fat Finger Trade

Context :

National Stock Exchange’s (NSE) derivatives segment witnessed a ‘fat finger’ trade on Thursday that may have caused a loss of ₹200-250 crore to a brokerage house.

Details:

In a circular, National Stock Exchange asked its trading members to put in place appropriate internal systems and procedures to ensure that such orders/transactions are not placed on the trading system of the exchange, including trades through algorithmic trading.

Fat Finger Trade:

In market parlance, a ‘fat finger’ trade is an erroneous action resulting from pressing a wrong key. In simple terms, when traders and dealers in the securities markets press the wrong key that too when they punch in large buy or sell orders into their terminals. Erroneous trades caused by such typing mistakes, which set off a chain reaction of related transactions, are known as ‘fat finger’ trades.

Why is it important?

Every reported instance of a fat finger trade has caused a record intra-day swing in the affected index, causing fluctuations in investor wealth to the tune of billions of dollars.

The rising clout of algorithmic traders, who use computer programmes to spot split-second opportunities and flood the system with millions of orders within microseconds, exaggerates the impact of fat fingers. Undoing the damage from fat finger trades is far from easy. And too many butter-fingered trades could undermine the ordinary investor’s faith in the system.

Fat finger trades add one more element of risk and uncertainty to investing that we could do without.