Risk management practices to protect against fat finger mistakes

helpme_please said:
I am using Interactive Brokers for stocks and futures. With a margin account, it is possible to make silly fat finger mistakes like;
- buy instead of sell and vice versa. Happened before quite a number of times.
- key in extra zero. Happened before but thankfully, I keyed in many more zeros and IB caught the mistake.
- mistake USD with JPY. So far, not yet happen.
- accidentally short-sell. Happened before. Took the losses to buy back immediately.
- mistake number of future contracts with number of shares. Thank god not yet happen.

The prospect of fat finger mistakes gives me nightmares because it can throw me and my family into poverty.

We are all humans. Over a multi-decade trading career with relatively high trading frequency, occasional careless mistakes are quite hard to avoid.

How do elite traders on this forum manage this risk, given that even professional traders can make such mistakes? I am a retail trader/investor.
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The extra zero error risk can be minimized by keeping just enough account balance.
With IB, say you have $100K USD, you can buy 30 ES futures but no way will IB let you buy 300 with a 100K account, they will reject your order.

Likewise 'mistake number of future contracts with number of shares'.
That cant happen with IB for the same reason above. Yes IB could have a bug in their margin checking logic and let it through but i haven't seen this happen. If anything they are over conservative and trigger happy in rejecting orders when you get close to using up all your margin

Clicking buy instead of sell.
I would agree, TWS is not the best order entry GUI, yes it is quite is easy to forget to change the BUY/SELL drop down from the default value. Perhaps use a different Front end for TWS that has big and distinct BUY/SELL buttons or write your own custom specialized GUI using the API.

Personally all my trading is automated so fat finger errors cant happen, however there can be bugs in my code. But at this point my order entry code base is quite stable and i rarely make changes to it.
 
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Slow down a little bit. I still make a few of those errors (actually relatively lots lately being new to TWS), but I expect they'll decline as I get more familiar with some of the visual queues.

You can set up warnings for orders over a certain number of shares or dollar amount.

Check your position for how it will affect your margin balance. This is where I catch errors both in improper entry (buy vs. sell, number of shares, credit vs debit...) AND if my on-the-fly position size calculations were wrong.

And the best thing? Even in fast markets, this has made my trading better. Having to commit more than a minute to order entry also gives me time to slow down and reflect on the position while I'm going through the motions getting everything entered. Definitely backed away from some bad trades that would have screwed me with a hair-trigger buy/sell.
 
Use a broker that actually reads orders back to you. Think about the cost of a mistake versus higher commissions. If you don't want to use your broker's desk you can always default back to their e commerce platform.
 
I don't think those are fat finger mistakes... maybe the extra zeros. Volume can easily be controlled with IB's system. Just add a maximum global $-volume. Or a standard trade size in futures you regularly trade.

The rest is just because you're not paying attention. How can you mistake JPY for USD?
 
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JackRab said:
The rest is just because you're not paying attention. How can you mistake JPY for USD?
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I recall a day when one of the index arb guys at Bear Stearns traded 50k spooz MoCC instead of 50k SPYs MoC.
 
helpme_please said:
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The prospect of fat finger mistakes gives me nightmares because it can throw me and my family into poverty.
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A fat finger mistake can only "throw you and your family into poverty" if you do not cancel it right away. I made a fat finger mistake once, and immediately closed the position at a small loss. Lesson learned.

That lesson is all it took to make me more aware of what I was doing. Never made the mistake ever again.

It is not complicated, and doesn't require an entire thread to explain what to do.

If you make a fat-finger mistake, GTFO of your position immediately and go into repose for a few minutes/hours/whatever it takes for you to learn from it.

Case closed. End of line.
 
Thanks for all the replies. It seems fat-finger mistakes are inevitable from time to time.

One thing I do not agree is to use automation to replace humans in order to eliminate careless mistakes. If bugs happen, bankruptcy can happen very quickly. Remember Knight Capital? When humans make mistake, they can correct the mistake quickly assuming detection is done immediately. Losses will occur but not to the point of bankruptcy. When machines make mistakes, they keep repeating the same mistakes thousands of times in a split-second until the machine self-destructs.
 
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