How do you prevent fat fingers?

Fat finger errors can be prevented if firms set limits on the dollar or volume amount of orders, require authorizations for trades over a certain dollar value, and use algorithms and other computerized processes to enter trades, versus having traders enter them manually.

investopedia.com - Fat Finger Error Definition - Investopedia

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What Is a Fat Finger Error?

A fat finger error is a human error caused by pressing the wrong key when using a computer to input data. Key Takeaways A fat finger error is an error caused by a human, as opposed to a computer, in which the wrong information is inputted. Fat finger errors are often harmless but can sometimes have huge implications, depending on how widespread their impact is and how long it takes to catch them. Most errors in trading, either human or machine, can be contained if caught in time and canceled.

Understanding Fat Finger Error

Fat finger errors are often harmless but can sometimes have a significant market impact. For example, if a trader receives an order to sell 1,000 shares of Apple Inc. (AAPL) at the market price and incorrectly enters 1,000,000 shares to sell at market, the sell order has the potential to transact with every buy order at the bid price until it gets filled. In practice, most brokerage firms, investment banks, and hedge funds set up filters in their trading platforms that alert traders to inputs outside typical market parameters or to prevent erroneous orders from getting placed. Most U.S. exchanges, such as the New York Stock Exchange (NYSE), NASDAQ, and the American Stock Exchange (AMEX), require erroneous trades to be reported within 30 minutes of execution. In the aftermath of the May 6, 2010, “flash crash” that caused a significant, rapid, and unexpected drop in U.S. stock indexes, one early explanation was a fat finger error. The idea was that a trader had entered an order incorrectly, placing the order in the billions rather than the millions. Fat finger errors can be prevented if firms set limits on the dollar or volume amount of orders, require authorizations for trades over a certain dollar value, and use algorithms and other computerized processes to enter trades, versus having traders enter them manually.

Examples of Fat Finger Trading Errors

A few examples of fat finger trading errors include the following:

A fat finger error was blamed for causing a 6% plunge in the British pound in 2016. A junior Deutsche Bank employee mistakenly sent $6 billion to a hedge fund in 2015 after incorrectly entering the “gross figure” instead of net value. Deutsche Bank retrieved the funds the following day. In 2014, a trader at Mizuho Securities accidentally placed orders for more than $600 billion in leading Japanese stocks; the price and data volume were entered in the same column. Fortunately, the majority of orders were canceled before they were executed.

Preventing Fat Finger Errors

The following processes and procedures may reduce fat finger errors:

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