Trade bust on futures

TraDaToR

TraDaToR

Hello Guys,

I have recently( and luckily ) been on the other side of a fat finger error. One which spiked outside "no bust range", and I was confronted to the dilemma of closing it ASAP or waiting one day to see if the exchange decides to bust trades...Finally I waited one day but of course the market had moved a bit in the direction of the fat finger...And I lost a bit compared to what I would have made initially...

Trade busts are pretty rare on futures so what is your take on this? Can someone tell me a situation were trades have more chance to get busted? Examples of recent trade busts?

Thanks a lot.
 
I'm curious to know too. They are very rare so I guess you were 'lucky' in a sense to even see one :) I've seen about 10 busts per million fills so far.
 
Here's my take.

Futures busts are rare because fat finger errors which significantly impact market price are rare.

If I see a significant spike in one direction my immediate impulse is to sit on my hands. I don't know what caused the spike, and assuming it was an error is arrogant.

When talking about this I immediately think of the flash crash a couple of years ago. Trading in this environment is extremely risky.

Perhaps you buy after a spike lower, and then the market drops another 10% in seconds. What then? Will the trade be busted? Will it stand? Why take the risk?

Maybe your broker even liquidates your position and you end up owing many multiples of your original account size to your broker to cover the cost. Do you really want to rely on an exchange to bust your trades?

Let's assume you're lucky enough to buy on the low of the spike down and take no heat/pressure. The market bounces back and you sell for a tidy profit. The market continues to rocket higher and you're sitting there regretting having sold so early. Then about an hour later your broker calls you and tells you that you're original buy transaction has been busted by the exchange. ..but your sell transaction has not. How are you going to feel about being short with the market heavily against you?

IMHO trading those events is just ludicrously dangerous. If you search this forum you'll likely find horror stories from the flash crash of may 2010. Watching the es drop 60-100 pts in seconds/minutes was pretty alarming. No one knew what to make of it. We didn't know if an atomic bomb had gone off or what.
 
"Fat Finger Sends Long Bond Futures Soaring In Overnight Trade" dec 2013


It is at CME's discretion whether they bust trades or not. So whoever they are better friends with wins.

http://www.zerohedge.com/news/2013-12-23/fat-finger-sends-long-bond-futures-soaring-overnight-trade


I remember being on the right side of the flash crash and adding on the way down. Huge gain for me. After words, I frantically called my broker after being flat to see if anything was getting busted. Thankfully nothing was , but if it had been , a huge winning day could have been a huge losing day.


After I saw those ZB trades get busted in dec 13, I thought that was the biggest bullshit ever because that just means CME is picking winners and losers.

StockApprentice's advice is absolutely right. Playing with fire if you are levered and trading during ultra vola spikes
 
Thanks for your answers guys.

I am talking about real fat finger errors here ( like the example of dec 13 ) not volatile real market action like the flask crash. It's quite easy to make the difference. And yes the fear of getting the initial orders busted and not the cover orders is why I started this thread.

I guess next time I will close ASAP. IMO the chance of getting busted is low and in the end even if it get busted the amount I will lose will be equal to the amount I lost by waiting one day, which is tremendously smaller than the spike itself. :)
 
The big trick is to stay within a trading exchange's officially posted "Non Reviewable Trading Ranges". All futures and options exchanges have these published. If you are within these parameters the trade cannot be busted.

CME's Non-Reviewable futures trading ranges, updated periodically:

http://www.google.com/url?sa=t&rct=...UW3EXfIzXW6x9eQjY6PEaLQ&bvm=bv.70810081,d.aWw
CME Rulebook regarding "Non Reviewable Range", look at section 588:

http://www.cmegroup.com/rulebook/CME/I/5/5.pdf

ICE Reasonability and No Cancellation Ranges:

https://www.theice.com/publicdocs/futures_us/no_cancellation_range_and_reasonablity_limits.pdf
 
bone said:
The big trick is to stay within a trading exchange's officially posted "Non Reviewable Trading Ranges". All futures and options exchanges have these published. If you are within these parameters the trade cannot be busted.

CME's Non-Reviewable futures trading ranges, updated periodically:

http://www.google.com/url?sa=t&rct=...UW3EXfIzXW6x9eQjY6PEaLQ&bvm=bv.70810081,d.aWw
CME Rulebook regarding "Non Reviewable Range", look at section 588:

http://www.cmegroup.com/rulebook/CME/I/5/5.pdf

ICE Reasonability and No Cancellation Ranges:

https://www.theice.com/publicdocs/futures_us/no_cancellation_range_and_reasonablity_limits.pdf
More...


Many thanks for this. :cool:
 
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