Fat Finger Reverses Stock Market Slump

from the fat-finger-fat-profits dept

The stock market has been taking a pounding over the past several sessions, but yesterday’s action brought some relief as the major indices surged towards the close. There was no obvious catalyst for the move, although late-session reversals aren’t all that rare. So, should investors be relieved that buyers stepped into the market? Not necessarily — it would appear that the late really was simply caused by a so-called fat finger error. Basically, a trader at a major Wall Street firm messed up on an order and then had to do some major buying in order to cover for the mistake. Other traders, recognizing the situation, piled on, taking advantage of the sudden buying panic. These type of human errors happen from time to time, sometimes with great significant consequences for the offending firm or trader. In 2005, one such error at a Japanese firm ended up costing $251 million. This time, the consequences probably won’t be so severe, although it still seems like it would be a good idea to develop some better preventative controls.

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