What makes up a bad trade on the stock market?

Proctor & Gamble apparantly made a bad trade which helped cause the meltdown on Wall Street earlier today(the stock market dropped almost 1,000 points in about 30 minutes). My question is what makes a bad trade on Wal Street?

5 Answers

  • 10 years ago
    Best Answer

    <<<Proctor & Gamble apparantly made a bad trade which helped cause the meltdown on Wall Street earlier today ... My question is what makes a bad trade on Wal Street?>>>

    "According to multiple sources, a trader entered a "b" for billion instead of an "m" for million in a trade possibly involving Procter & Gamble (NYSE: pg), a component in the Dow."

    "Sources tell CNBC the firm in question that handled the erroneous trade is Citigroup. The bank said it has no evidence of a bad trade but is investigating the situation."

    Briefly, a bad trade is where the order that goes to the exchange is different than the order as originally presented.

    Bad trades occur every day, but usually they are so small they have no impact on the market. I have had a couple of bad trades in my account over the years.

    The most recent example of a bad trade in my account was when a called the brokerage and asked the broker to enter a spread order. (In order for a spread order to fill two or more trades must take place simultaneously.) This particular broker did not know how to enter a spread order so he entered two separate orders, only one of which was filled. In this case it was clear the mistake was made by the brokerage so they filled the other side of the order at the price I specified even though the market had moved away from that price.

  • 10 years ago

    Probably P&G's price drop was caused by a mistake in the market's computers.

    A fall like today's happens like this:

    Trading is volatile because of a problem (Greek debt)

    A very big investor bets the wrong way on something. If it's a hedge fund they bet with lots of leverage. That means they use the value in their account as security to buy stocks on credit. When the value of their stocks fall below the amount they owe, they must sell to "cover" the missing amount. When they sell, that causes the stock price to fall more so they must sell more and so on.

    Other investors see the falling prices and begin to sell. Sometimes they have computers that automatically sell if prices fall a certain percentage. Now the computers are racing each other to sell and so the price falls some more. It becomes an avalanche of selling.

    When the DOW falls 1100 points it automatically takes a time out to let investors regain control of their programmed selling and decide what to do next. Usually some big investors try to begin buying and stop the fall. Sometimes that works, sometimes it just makes the crash pause for a bit. Dangerous times for investors but if you can figure out when it has hit bottom, it is a wonderful time to buy.

  • Max M
    Lv 7
    10 years ago

    Some guy sold 1 billion shares of P&G instead of 1 million. Man, I wish I had a chance to buy it at $39/share.

  • Rolf
    Lv 6
    10 years ago

    Banks buying up bad loans.

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  • 10 years ago

    Hitting the wrong key

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