Trade Bust
A trade bust is the cancellation of an executed trade by the exchange, usually because the price was clearly erroneous under the venue’s rules.
A trade bust is when an exchange or regulator cancels an executed trade, usually because the price was clearly wrong. The trade is treated as if it never happened. Rules differ by country and venue.
- Category
- Market Structure
- Reading time
- 2 min
- Also called
- Broken trade, Clearly erroneous trade, Trade cancellation
- Updated
Trade busts in plain words
A FINRA officer can cancel a trade if it is clearly erroneous.1
They can also act if cancelling is needed to keep the market fair and orderly or to protect investors and the public.1
After the 2010 flash crash, new exchange and FINRA rules made the process for breaking erroneous trades clearer.2
How a trade bust happens
Bad print
A trade executes far from fair value.
Review
An officer reviews the trade.
Decision
An officer decides whether the trade is clearly erroneous.1
Thresholds
Clear rules set when trades are broken and at what prices.2
Notice
Both sides are told as soon as possible, and either can appeal.1
Unwind
Positions and P&L are reversed.
Worked examples
Example 1 — Fat finger
BustedHypothetical stock at 40.00 prints at 4.00.
| Gap | −90% |
The price was clearly erroneous, so the trade was cancelled.1
Example 2 — Lucky buyer
Gain reversedA trader buys at 4.00 and sells at 39.00 for a hypothetical 100 shares.
| Expected gain | 3,500 |
| After bust | 0 |
| Profit lost | −3,500 |
If the buy is busted, the profit disappears, because breaking erroneous trades cancels the fill.2
Example 3 — Appeal
AppealA trader disagrees with a bust.
| Option | Appeal |
The side that lost out appealed the decision.1
Trade bust vs trade adjustment
| Aspect | Bust | Adjustment |
|---|---|---|
| Result | Trade cancelled | Price changed |
| Used when | Clearly erroneous | Some venues' rules |
| P&L | Removed | Recalculated |
| Rules | Vary by venue | Vary by venue |
Where busts matter
Crashes
During a Circuit Breaker and Trading Halt event.
Stops
Fills on a Stop Loss may be busted.
Market orders
A Market Order in thin books.
P&L
Changes Profit and Loss.
Advantages and disadvantages
Advantages
- Protects against obvious errors.
- Supports market confidence.
- Clear thresholds reduce disputes.
Disadvantages
- Trades you relied on can vanish.
- Hedges may be left unmatched.
- Decisions can take time.
- Rules differ by country and venue.
Going deeper
Read as far as you need. Each level builds on the one before it.
Common mistakes
Counting on erroneous fills
They may be busted.
Hedging off a bad fill
Hedge may remain alone.
Using market orders in thin books
Use limits.
Assuming same rules abroad
Rules differ.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- A bust cancels an executed trade.
- Usually for clearly erroneous prices.
- Rules set thresholds.
- Parties can appeal.
- Rules differ by country and venue.
Frequently asked questions
Can my profit be taken away?
Who decides?
How fast?
Further learning
- Market Order
Fill risks.
- Limit Order
Price protection.
- Exchange
Venue rules.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.