Error Trades in Futures Markets

45 Pages Posted: 15 Feb 2009 Last revised: 27 May 2009

Bahattin Buyuksahin


Michael S. Haigh

Standard Chartered Bank

Jeffrey H. Harris

American University

Date Written: February 11, 2009


The impact of news, events or volatility on the underlying market microstructure has been studied extensively in finance literature. Common to many of these studies is the arrival of "true" news. In this paper we use unique data on error trades that have occurred on the CBOT and CME and assess their impact on the underlying market microstructure. Critically, our research can be discerned from other research in that an error trade is, by definition, an event that was triggered by accident and is not "true" news. As such, an evaluation of "false news" stemming from human errors is unique. We find that despite the fact that participants are informed well after the event has occurred that the "news" turned out to be noise, market efficiency prevails in the sense that trading activity drives market prices back toward their pre error levels long before the exchange announces to the traders that an error has occurred. In line with the market microstructure (volatility) literature we also find that the composition of traders changes around the error event and some types of traders limit their trading. We also show that the types of orders placed by traders changes (more market orders relative to limit orders). While the increased dominance of electronic trading over the open-outcry form of trading has called regulatory attention to error trading policies, we identify no area of concern regarding these policies from a price discovery standpoint. Further, we find that market microstructure reactions to human errors seem to be similar to those found when "true news" is released.

Keywords: Error Trades, Futures Markets, Market Microstructure

JEL Classification: G14, G13

Suggested Citation

Buyuksahin, Bahattin and Haigh, Michael S. and Harris, Jeffrey H., Error Trades in Futures Markets (February 11, 2009). Available at SSRN: or

Bahattin Buyuksahin (Contact Author)

ADIA ( email )

211 Corniche Road
Abu Dhabi, Abu Dhabi PO Box3600
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Michael Stephen Haigh

Standard Chartered Bank ( email )

6 Battery Rd
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Jeffrey H. Harris

American University ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-6669 (Phone)

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