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 Thursday

    The name given to Thursday, Oct. 24, 1929, when the Dow Jones ...
  5. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) ...
  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. Stock Analysis

    What is the Price-to-Sales Ratio?

    The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues.
  7. Investing Basics

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  8. Investing Basics

    What is a Mid-Cap?

    Mid-cap companies are those with a market capitalization between two and $10 billion.
  9. Fundamental Analysis

    What's a Drawdown?

    A drawdown is usually expressed as a percentage change between the peak price and the low price (trough) of an investment.
  10. Taxes

    Is It Smart To Get Dual Citizenship?

    Does it ever make sense to be a citizen of the U.S. and somewhere else? Yes, so you can work minus a visa – not so much, if you get drafted into the army.

You May Also Like

Hot Definitions
  1. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  2. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  3. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  4. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
  5. Absorption Costing

    A managerial accounting cost method of expensing all costs associated with manufacturing a particular product. Absorption ...
  6. Currency Carry Trade

    A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase ...
Trading Center