An Erroneous Trade in crypto refers to a transaction executed on a trading platform or decentralized exchange at a price or quantity that is demonstrably misaligned with prevailing market conditions, often resulting from human error, system malfunction, or data input discrepancies. Such trades require specific protocols for rectification.
Mechanism
The execution of an erroneous trade typically arises from factors such as “fat-finger” errors, where incorrect parameters are entered, or from a fault in an automated trading algorithm or an oracle feed providing corrupted price data. These anomalies can lead to orders being filled at prices significantly away from the market bid-ask spread, creating an immediate and substantial financial discrepancy.
Methodology
The strategic approach to managing erroneous trades involves establishing clear “obvious error” rules and implementing automated circuit breakers or price collars to prevent extreme deviations. Post-trade, it necessitates a transparent, auditable process for review, potential cancellation, or adjustment, often involving an exchange’s risk management team or a protocol’s governance mechanism. This aims to maintain market integrity and protect participants from significant unintended losses.
A liquidity provider's system failure in a flash crash triggers severe regulatory action, focusing on breaches of market access rules and systemic risk.
A clearly erroneous trade is a transaction executed at a price that deviates so significantly from the prevailing market as to be considered a system anomaly.
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