#434 - How Do You Manage A "Fat-Finger" Trade?

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Nov 30, 20184m
#434 - How Do You Manage A "Fat-Finger" Trade?
Nov 30 '184m
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Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about how to manage a fat finger trade. What is a fat finger trade? A fat finger trade is basically this idea that you just mistype something on a keyboard or your finger just kind of slipped or you hit two zeros instead of having one zero and so, you ended up trading 100 contracts and wanted to trade 10 contracts or you just incorrectly typed the ticker symbol or miscalculated something, any combination of that, but you basically just entered a trade you did not mean to enter. Now, look. I've done this all the time and in fact, the reason I’m doing this podcast is because I just did this like literally about a week ago where I exited a trade that I should not have exited, but I just didn't catch it. I didn't think through the process. I thought I was looking at one thing. I meant to look at something else and I executed a closing trade on something that we had literally just entered the day before. It caused a lot of confusion, obviously, a lot of emails, but again, it proves that one, I’m human in doing this for real in my real account and then two, it can happen to anybody. I’ve been doing this now over 10 years and this is still something that happens to me on occasion. Though not as often, but it's a good reminder that it does happen. But the idea behind fat finger trades is again, that it was a trade that you did not need to make.

What do you do or how do you manage them if you made the trade? Well, number one, if it’s a closing trade, it's pretty easy because you just close it and if it's an early close of a position, if it was profitable, most of the time, you just let it go. In this case, the fat finger trade that we made was a closing position. We closed it for a whopping $4 profit. That was great because it closed literally the next day. We just let the position go. We didn't try to rush or reenter it. If it's an opening trade that you made and maybe you made a trade in the wrong contract month or you did the wrong number of contracts, the best thing you can do, honestly, is just quickly reverse the trade and that means even if it cost you a couple of pennies in pricing or it cost you a little bit in commissions, the idea is that if you didn't want to be in the position to begin with, then just get right back out of the position and I've done this before myself too where I've made a trade and I just literally typed in the wrong ticker symbol, one extra wrong letter, built the whole trade, etcetera, but it was on the completely wrong stock that I was trying to target and I just reversed the trades very quickly. Sometimes I take a $20 or a $30 haircut because I take basically the next available pricing, get the trade off. I didn’t want to be in that trade to begin with, so I want to remove the risk and the exposure and it’s just a cost of doing business. We try to minimize these always in trading and this is part of the human error element to trading which I think is interesting, but again, if you have a fat finger trade or you just do something wrong, just quickly reverse it. Catch your breath, walk away for 10 minutes, whatever you need to do and then come back and just reanalyze things and go from there. Hopefully this helps out. As always, if you have any questions, let me know and until next time, happy trading.

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