I've made some order typos earlier in my trading career and I took steps to make sure they would never happen again. So I guess I'll never be able to experience the scenario you are talking about. My comment still stands: to be fair, US exchanges need to either make all trades stand regardless of price, or allow the counterparty to have the option of an adjustment in price that is x% away from the last trade. The second option allows people not to go bankrupt on one trade, but still makes it hurt so that they will be less likely to make the same mistake again. If US exchanges implemented these rules you wouldn't get situations where people had no idea whether they had positions on or not in cases where there are potential erroneous prices. People could control their risk instead of just guessing because of some idiot with fat fingers.
Japanese day trader makes $54 million a year
- Thread starter bln
- Start date
I've made some order typos earlier in my trading career and I took steps to make sure they would never happen again. So I guess I'll never be able to experience the scenario you are talking about. My comment still stands: to be fair, US exchanges need to either make all trades stand regardless of price, or allow the counterparty to have the option of an adjustment in price that is x% away from the last trade. The second option allows people not to go bankrupt on one trade, but still makes it hurt so that they will be less likely to make the same mistake again. If US exchanges implemented these rules you wouldn't get situations where people had no idea whether they had positions on or not in cases where there are potential erroneous prices. People could control their risk instead of just guessing because of some idiot with fat fingers.
The by far best and simplest solution to the fat finger/ error problem comes from Thomas Peterffy:
"
Obvious Error Rules Allowing for After-the-Fact Cancellation of Executed Trades Harm Liquidity. Exchanges Should Program Their Systems Not To Execute Trades that Would Violate Obvious Error Parameters. Trades that Are Executed Should Stand.
As noted, the current logic and operation of obvious error rules discourages potential liquidity providers from stepping in and buying shares in a sharply falling market because if the stock rallies, the liquidity provider may find that their buy trades are cancelled and their sell trades stand (leaving them with an open short position in a rallying market, which they will not discover until after the fact). On the other hand, if they are a buyer in a falling market and the stock continues to fall and remains lower, the buy trade will likely stand.
Even without this adverse selection problem, it is obvious that cancellation of trades after the fact undermines certainty and confidence in the marketplace and creates severe logistical and administrative problems and expenses.
The solution is that exchanges and market centers should not break trades. Rather, they should have clear rules – in advance – as to what would constitute an unacceptable trade price, and should program their systems not to match such trades. Any trade that is executed should stand.
"
https://www.interactivebrokers.com/download/CFTC-SEC_Adv_Comittee_Speech.pdf
"
Obvious Error Rules Allowing for After-the-Fact Cancellation of Executed Trades Harm Liquidity. Exchanges Should Program Their Systems Not To Execute Trades that Would Violate Obvious Error Parameters. Trades that Are Executed Should Stand.
As noted, the current logic and operation of obvious error rules discourages potential liquidity providers from stepping in and buying shares in a sharply falling market because if the stock rallies, the liquidity provider may find that their buy trades are cancelled and their sell trades stand (leaving them with an open short position in a rallying market, which they will not discover until after the fact). On the other hand, if they are a buyer in a falling market and the stock continues to fall and remains lower, the buy trade will likely stand.
Even without this adverse selection problem, it is obvious that cancellation of trades after the fact undermines certainty and confidence in the marketplace and creates severe logistical and administrative problems and expenses.
The solution is that exchanges and market centers should not break trades. Rather, they should have clear rules – in advance – as to what would constitute an unacceptable trade price, and should program their systems not to match such trades. Any trade that is executed should stand.
"
https://www.interactivebrokers.com/download/CFTC-SEC_Adv_Comittee_Speech.pdf
That's a collection of bnf trader's thoughts from various places. I'm looking for the discussion between bnf trader and Cis Trader, if you can find that it'd be greatly appreciated and I'll do my best to translate.
That's most likely not what mgn was talking about. If you're looking to find how he trades, I can tell you what I saw him explain on TV a few years ago. He simply buys some of the biggest percentage losers during the day and sells on the bounce. If he's still trading that way or not I don't know.