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Fat Fingered Folly

Optimize Blog - May 7, 2010 - 0 comments

What is the difference between a ‘b’ and an ‘m’? Well in stock market terms the difference can be quite extraordinary.
On Thursday the Dow Jones Index plummeted a massive 9% leading the Securities and Exchange Commission to launch an enquiry into the unusual trading patterns. Share trading is all carried out electronically with trades taking place in fractions of a second. One theory around the chaos is that a trader – yet to be identified – hit a ‘b’ representing ‘billion’ instead of ‘m’ representing million. This is referred to as a “fat finger” trade – an erroneous data entry.
Complex algorithms sit behind trading portfolios and the error may have caused a domino effect as thresholds were reached launching further additional trades causing the frantic trading and significant fall in share prices. 3M and Proctor and Gamble were specifically hit and their shares fell by 25% and 37% respectively.
Overall the index fell by almost 1,000 points in a just a few minutes of trading and whilst the market later made a significant recovery, closing down just 3.2% on the day, we are sure to hear more as the investigations progress.
In a week where the world’s stock markets have been rocked by the ‘contagion’ effect following Greece’s ongoing struggle to deal with its debts it is ironic that a much greater impact was caused by a typo…..

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