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This Little Piggy Went to the Gas Market

Historically, fat finger trades — where a trader presses the wrong key or adds a zero too many on an electronic trading system — were considered exclusive to equities markets. Not anymore. They are now stretching their piggy little digits across into other asset classes.
Most recently, on June 8, an alleged fat finger wiped eight percent off of natural gas prices on NYMEX in an after-hours trade from Asia. The natural gas market recovered almost immediately, but not before some savvy traders saw what had happened and jumped in to buy and profit from the mistake, according to Reuters. The same thing happened during the May 6, 2010, equities flash crash, although it was the smarter machines with clever algorithms that did most of the jumping in, rather than human beings.
Fat fingers, abusive or manipulative trading and mini flash crashes, are increasing as high frequency trading penetrates alternative asset classes, such as energy and commodities, at a rapid pace. The Reuters article said that about a third of energy futures volume is now done by computers, and HFT accounts for half of that. Issues with high-speed algorithmic trading are growing concurrently.
Consider that on May 5 the crude oil market saw its second largest ever daily drop when sell-stops were triggered again and again by trading algorithms. This time there was no fat finger, and no Greek-tragedy style news such as that of May 6th, 2010. The $13 drop in the price of Brent was almost unprecedented, yet it made few headlines. Oil prices dropping are like equities prices rising – good news for most people.
But good news or not, the fall was exacerbated by several machines which had similar sell-stops programmed in. If a machine hits a sell-stop and the market plummets, it will likely encounter more sell-stops and push the market further down.
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