What's going on with DAX today?

Discussion in 'Index Futures' started by DT-waw, Nov 20, 2001.

  1. Exchange is investigating it, quite possibly someone miskeyed in their sell stop for 10,000 lots instead of 100.

    I covered my short position minutes before this happened :mad:

    This is a good example of why I never leave stops in an electronic market.
     
  2. def

    def Interactive Brokers

    what i hear is someone tried to sell 7 at 5100 but got a little fat fingered and typed sold 5100 at 7. The Eurex may or may not bust some of the trades. i'm sure it will be a hot topic in the press tomorrow.
     
  3. wild

    wild

  4. tntneo

    tntneo Moderator

    for those interested in automated trading this is a very good case you must make sure you handle.

    my recommendation, just my 2 cents other ideas welcome pro or cons :

    - stop loss orders : please, not market.
    if you had a market order during that plunge, for a while you contemplated huge, huge losses ( I am just glad they cancel all these trades anyway).
    use a limit, be generous with the limit but within reason. so in case of such event, you can get out yourself if it is an error (the market recovered in minutes yesterday).

    - automated entry orders.
    again, limit not market and I don't think it is too wise to send an order so out of the market. if your order is hit, it can't be a normal market. you may have great rewards or be killed.

    - for those using machines to trade
    these should have good 'bad tick' filtering. this is tough to code, but a bad tick when it triggers a bad trade is no laughing matter.

    - make sure to remember and believe anything can happen :
    including a drop of 800 points in 30 seconds !
    be ready for it.

    A big drop occured this summer on the ES if I am not mistaken, with an order to sell the market was sent as one order instead of being worked out (it was in the night session.. luckily ?) so it is not only in Germany.
    There are bad programmers out there and bad firm policy allowing stupid orders like these. You on the other side may be burnt, be careful.

    tntneo
     
  5. def

    def Interactive Brokers

    thought you may want to see one account. this was forwarded to me and I'm not sure which paper it comes from.

    Futures trade fiasco puts Dax in tailspin
    By Helen Dunne, Associate City Editor (Filed: 21/11/2001)


    THE German futures exchange Eurex was embroiled in a major row yesterday after it cancelled an unusually big trade, which left many of its members sitting on large losses.

    The December futures contract on Dax, Germany's index of leading shares, dropped almost 800 points from an opening level of 5,143 within half an hour of a trader hitting the wrong buttons.

    It is believed that the trader was intending to sell one futures contract when the market hit 5,180 but instead sold 5,180 contracts, which sent the market into freefall. It was unclear yesterday where he worked.

    The dramatic move triggered many electronically programmed trades, set up to automatically sell futures contracts once they hit a certain level.

    It also led to a major sell-off in the contract of Euro Stoxx, an index of leading European company shares. It opened at 3,807 but, within minutes, lost over 20 per cent to hit 2,985. Traders said that movements in the Euro Stoxx contract are very closely linked to the Dax contract.

    Five hours after the massive sell-off in Dax contracts, Eurex announced that trades below 5,083.5 would be cancelled. However, it took a further two hours for confirmation that trades on Euro Stoxx would be cancelled below 3,726.

    The news led to outrage among members of Germany's futures exchange, which is traded exclusively on electronic screens. One trader said: "This is un-bloody-believable. It is a complete mess."

    They were angry because trades initiated as a result of the dramatic slump had not been cancelled, leaving them nursing hefty losses. There was also outrage at how long it took Eurex to announce its decision.

    One trader said: "If they had left the initial mis-trade as it was, then I estimate it would probably cost the bank involved about £30 million. Instead, the bank has been saved and I and all the other members suffer."

    It is understood that many traders took the opportunity to buy both indices when it hit such low points, and then sold them when the market recovered at a much higher level. In some cases traders sold futures contracts on other European stock markets and actual shares, as a hedge to protect themselves.

    "I bought the market when it fell and then sold it when it reached a much higher level," explained one banker. "Now my first trade has been cancelled, but my second one hasn't because it was above the cut-off point. I have lost money and I am furious.

    "The guy involved must have been an idiot. All through the trading process it says things like 'are you sure?' It is meant to protect us from making errors."

    One Eurex insider said: "These guys are professional traders, they must have known this was a mis-trade and would be cancelled. They expected to profit from somebody else's error and now are complaining because they couldn't."

    However, futures traders rejected suggestions that they had capitalised on somebody else's misfortune and pointed out that a recent mis-trade by a Lehman Brothers employee was not cancelled, even though it also led to a dramatic swing in the market. "How do we know when they are going to consider
    it a mis-trade? Do they want us to sit on our hands?" said one.

    A Eurex spokesman said: "It did not take a long time. We have to get the information but a company has to first register that it was a mis-trade. We informed the market as quickly as possible."
     
  6. observer

    observer

    I also was a victim of the dissission of eurex.
    I closed a short trade in the eurostoxx50 future in that sell-off,
    and i tried to find out all day or the trade was valid.
    I have called the IB helpdesk at least 4 times, and even called the eurex 15 minutes before the market closed, but nobody could inform me.
    30 minutes after the market was closed , IB announced that the trades were busted.
    Due to this i have been in a position for the whole day without
    knowing it, and it even left me in an overnight position.
    They should have made the dissission before the market closed. That gives traders the opportunity to close an open position if they want to.
    But why did it take so long? They busted the dax-trades hours before.
    The mistake was made in the daxfuture. The eurostoxx50 future just followed the daxfuture.
    I think they have spend all day to find a legal way to bust the trades in the eurostoxx50, and they finally found it. Did the 'big guys' who lost a lot of money use their influence ?????
    Who will tell.

    Regards.

    Observer
     
  7. def

    def Interactive Brokers

    observor,
    i don't the "big boys" had any influence on this (or at least I hope they didn't) as I would suspect that many of the big banks and trading desks got hurt as well since many were buying immediately after the or hedging their portfolios as the future gapped around. The real shame is that the exchange took so long to make a decision.

    The scary thing IMO is that someone could potentially do this on purpose to knock the markets down - with the belief that their trades will get busted and this end up profiting by manipulating the markets.