The Fat Finger Trade
USD/CAD has certainly been an entertaining ride for the last couple of months. Slapped from its slumber by the massive volatility in oil, the currency went from tracing out quiet 50 point ranges to jumping 150 points in the blink of an eye as it turned into one of the most volatile G-10 trades of the year.
This week however it wasn’t oil that turned the loonie upside down. On a quiet Thursday morning just as the US traders were stumbling to their desks on a freezing New York morning the pair suddenly popped up. Not in a ten pips at clip kind of way, but straight up from 1.2500 to 1.2556 without a single pause along the way.
In my day trading chat room we scrambled for cover. Our stops were slipped by at least 25 points and what was intended to be loss of no more that 1% turned into an ugly 2% haircut before we could even say, “wtf?”.
There was no news on the wires and oil was quiet. Quickly, it became evident that this was a Fat Finger trade. Fat Finger is an old Wall Street colloquialism for a big mistaken order where a trader may wish to sell 50M CAD and inadvertently sells 500M or more. In this day and age of automated trading Fat Finger trades are much less common -- but they still happen for a variety of reasons.
What happened next however showed me just how much progress many traders made in my room. Instead of whining and crying about the unfairness of life, several of my most active members flipped direction and went long the pair, “repairing” the damage done by the Fat Finger trade. I had actually done the opposite. I sold into strength with size and covered quickly taking back 1% of the loss.
Whether we went long or short USD/CAD in the aftermath of the Fat Finger trade really didn’t matter. Volatility assured profits for both sides. What mattered more was our posture and our reaction. Since we always trade with small size, even an outlandish move by the Fat Finger trade didn’t hurt our account by more than 2%-3% and our mental willingness to react rather than freeze like a Bambi in headlights helped us mitigate some of the losses. The next day many of the same traders picked up another 1% in CAD pairs and the bad memories from the Fat Finger trade were history.
That in my opinion is what great trading is all about. Its not about “hitting the big one” like some degenerate gambler with a Lotto ticket. Its about trading small, keeping your wits about you and never, ever losing so much that you can’t come back to trade the next day.