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. Black Thursday

    The name given to Thursday, Oct. 24, 1929, when the Dow Jones ...
  3. Exchange

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

    A government commission created by Congress to regulate the securities ...
  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. Personal Finance

    How Minimum Wage Impacts Unemployment

    We explain how the minimum wage affects unemployment, public assistance, and the economy overall.
  7. Technical Indicators

    What are the signs of a bear market rally?

    Read about some of the signs of a bear market rally, an unpredictable bull movement that takes place in the middle of a stronger downtrend.
  8. Fundamental Analysis

    Why are OTC (over-the-counter) transactions controversial?

    Learn more about over-the-counter transactions, and why OTC traders are considered riskier than traders working with larger market exchanges.
  9. Entrepreneurship

    How is venture capital regulated by the government?

    Learn about some of the ways in which the U.S. government and the Securities and Exchange Commission regulate venture capital.
  10. Forex Education

    What's the difference between bid-ask spread and bid-ask bounce?

    Understand the difference between the bid-ask spread that determines the buy or sell price for a stock and a bid-ask bounce, a situational price volatility.

You May Also Like

Hot Definitions
  1. Command Economy

    A system where the government, rather than the free market, determines what goods should be produced, how much should be ...
  2. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  3. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  4. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  5. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  6. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
Trading Center