On Thursday, between 2. 37pm and 2. 39pm, a trader sold 25,000 lots of Nifty call options at 14,500 strike at prices as low as Re 0. 15. At that time, the market price for this contract was about Rs 2,100. Each lot of Nifty contract is for 50 numbers. So the estimated total loss is between Rs 200 crore.
What is fat finger trade?
It is an erroneous trade due to puching a wrong key on the keyboard or clicking the mouse at wrong place. For example a trader sellls? one lakh shares at Rs 1,010 while the market price is Rs 1,100. The result is loss of Rs 90 lakhs. So it can be a huge loss for the initiator, and windfall gains for others.
How do such trades get fixed?
Some broking houses and exchanges have in-house system or filters to catch and stop such trades. Some exchanges annul such trades with a warning. Parties involved in such trades settle it among themselves too. If taken insurance can help too.
Major fat finger trade that led to big fat losses abroad and in India:
- $600 billion inflated order for blue-chips in 2014 at a Japanese exchange.
- $ 28 billion wrong transfers into several accounts in 2018 at
- Rs 60 crore loss an
Emkay Global Tradercaused in Oct 2012 in Nifty contracts. It also led to a near 15% drop in the Nifty index, but failed to trigger a market-wide circuit breaker.
A recent media report said that to neutralise fat finger trades from hitting its trading engine, the NSE was to put an alert system for trades that were at a substantial premium or discount to the market price. However, on Thursday, no such system had kicked in, an investment adviser said.