Human Factors in Financial Trading: An Analysis of Trading Incidents

OBJECTIVE: This study tests the reliability of a system (FINANS) to collect and analyze incident reports in the financial trading domain and is guided by a human factors taxonomy used to describe error in the trading domain. BACKGROUND: Research indicates the utility of applying human factors theory to understand error in finance, yet empirical research is lacking. We report on the development of the first system for capturing and analyzing human factors–related issues in operational trading incidents. METHOD: In the first study, 20 incidents are analyzed by an expert user group against a referent standard to establish the reliability of FINANS. In the second study, 750 incidents are analyzed using distribution, mean, pathway, and associative analysis to describe the data. RESULTS: Kappa scores indicate that categories within FINANS can be reliably used to identify and extract data on human factors–related problems underlying trading incidents. Approximately 1% of trades (n = 750) lead to an incident. Slip/lapse (61%), situation awareness (51%), and teamwork (40%) were found to be the most common problems underlying incidents. For the most serious incidents, problems in situation awareness and teamwork were most common. CONCLUSION: We show that (a) experts in the trading domain can reliably and accurately code human factors in incidents, (b) 1% of trades incur error, and (c) poor teamwork skills and situation awareness underpin the most critical incidents. APPLICATION: This research provides data crucial for ameliorating risk within financial trading organizations, with implications for regulation and policy.