Some of us might not have heard about the term “Fat-Finger Error” or “Freak Trade”. Although, This term(Fat-Finger Trade) was recently in the news When NSE (National Stock Exchange) cautioned brokers and traders upon executing bogus trades. So, Let’s understand “What is Fat-Finger Error?”.
A “Fat-Finger Error” is an input error made from a keyboard or mouse misclick by Brokers during trading sessions at Financial markets. For Example- Suppose, If a broker initiates a trade at the stock market where he wants to place an order to buy 1,000 Apple shares and ends up buying 10,000 Apple shares. In this case, the broker has performed an error related to the stock quantity in the order. If, The broker will carry out any mistake in trade related to the Quantity, Price, Wrong stock or contract, or any other input errors. Then, The broker made a “Fat-Finger Error”.
Now, We will look at some circumstances where this error took place. In October 2012, Emkay Global Trader faced a loss of Rs 60 crore in Nifty contracts. From this, the Nifty index tanked by almost 15%.
In 2014, An Inflated order of $600 Billion for blue chips took place at a Japanese exchange.
To counter this, The Exchanges and some brokerage companies have set filters to alert brokers while executing these errors during the trade. Through Filters, Automatic systems might be able to catch these errors and cancel that particular order.
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