Erroneous Trade

AAA

DEFINITION of 'Erroneous Trade'

A stock transaction that deviates so much from the current market price that it is considered wrong. Erroneous trades are caused by a variety of factors including computer malfunctions or human error. These trades are halted, or broken, because they do reflect the true price of the security and they can influence or cause erroneous trades on other stocks or exchanges.

INVESTOPEDIA EXPLAINS 'Erroneous Trade'

In 2009, the Securities and Exchange Commission (SEC) approved new exchange rules that would stop erroneous trades from being executed. The SEC rules allow an exchange to break a trade if the price differs from the consolidated last sale price by more than a specified percentage amount. For example, in regular market hours, 10% for stocks priced under $25; 5% for stocks priced between $25 and $50; and 3% for stocks priced over $50. Furthermore, the review process for the erroneous trade must begin within 30 minutes of the trade, and be resolved within 30 minutes after that.


In 2010, an erroneous trade was blamed for the nearly 1,000 point drop in the Dow Jones Industrial Average. The mistake was rumored to involve E-mini contracts which are stock market index futures contracts that trade in Chicago.

RELATED TERMS
  1. Stock Market Crash Of 1987

    A rapid and severe downturn in stock prices that occurred in ...
  2. Exchange

    A marketplace in which securities, commodities, derivatives and ...
  3. Securities And Exchange Commission ...

    A government commission created by Congress to regulate the securities ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) ...
  5. Securities Act Of 1933

    A federal piece of legislation enacted as a result of the market ...
  6. Cancellation

    Notice by a broker informing his or her client that an erroneous ...
Related Articles
  1. Investing Basics

    Principal Trading and Agency Trading

    Ever wonder what happens behind the scenes when you buy or sell a stock? Read on and find out!
  2. Trading Strategies

    Introduction To Momentum Trading

    This trading style offers major profit potential thanks to the powerful way in which momentum can drive a stock.
  3. Trading Strategies

    Introduction to Types of Trading: Fundamental Traders

    Learn about the different traders and explore in detail the broader approach that focuses on company-specific events.
  4. Trading Strategies

    What Caused The Flash Crash?

    Investigators are still trying to figure out what went wrong on May 6, but it seems likely that the crash was caused by multiple interlocking failures.
  5. Forex Education

    The International Money Market

    Banks, corporations, traders and speculators all use the IMM to borrow, lend, trade, profit, finance, speculate and hedge risks.
  6. Options & Futures

    Get To Know These Crucial US Options Market Regulations

    How are options regulated in the U.S and which organizations are involved in options market regulations?
  7. Economics

    The Impact Of Ending The US Embargo On Cuba

    Many argue that ending the US embargo on Cuba will not only make US consumers happy, but also help the US economy and bring more freedoms to Cuba.
  8. Economics

    Popular Places Where U.S. Citizens Need A Visa

    A U.S. passport will get you into many countries, but not everywhere. Here's how to visit five of the most popular destinations that require visas.
  9. Stock Analysis

    How You're Probably Using a 3M Product Right Now

    3M specializes in businesses in which few aspiring entrants have neither the patience nor the capital to build market share.
  10. Economics

    Are You the Victim of Unfair Labor Practices?

    If you are a union member, a union leader, or a manager at a company with an established union, you should understand unfair labor practices.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center