$52k gone from my IB account. What next, sue IB?

[Trader_Herry]

Quote from sprstpd:

As I said before, there are only two options here. One is that you close out the position immediately and then contact IB. The other is to not touch the position at all and then contact IB. But putting out limit orders at advantageous prices right before a news event is not an option unless you want to look like you are trying to trade the position as a "no-risk" position.

By the way, this situation is very similar to some that I've been through in the past involving positions that I took in afterhours trading during earnings announcements. I would get into a position at what I thought would be a very good price, but I wasn't 100% sure. But as it turns out my fill price was in the "bustable" range of afterhours trading. So the counterparty could be filing for a bust of the trade, while the earnings trading is going on. Do I get out of my position? If I do, and the counterparty does get a successful bust, then I probably lose money. If I wait, there is a chance that the position goes against me. Anyway, the reason why it is similar is because the counterparty could be trying a "no-risk" trade in that if the position goes for him after his fill, he wins. If it doesn't, he tries to bust the trade and if he gets the bust, its no skin off his back. This has happened multiple times to me, and in some cases the bust was allowed and some cases it wasn't.

The possible bust is similar to this case. What will you do if you get a bustable trade?

Close it. If that trader bust that trade, you lose.
Leave it open. If that trader doesn't burst that trade, the market may goes against you, you lose.

What will you do?

PS: By the way, I think you need to pay for bust fees so it isn't really "risk-free".

 

[OldTrader]

Quote from GTS:

So you say - is that IB's official position as well?

I've had erroneous positions appear in my MBTrading account that were later corrected. If I had traded out of them I would have ended up with the opposite position when they finally removed the original erroneous entry.

If a position shows up in your account that you don't believe is correct I do not think it is wise to simply close it first and ask questions later. Doing so is just as risky as leaving the position intact.

I think the basic unofficial "rule" for handling an error is simply to close it out. If you do anything other than this in essence you're playing the market. Now, if it turns out that your broker put it into your account in error, and now reverses it, you close that position out too.

Look at it this way: if you don't close it out, and the position goes on to wipe your account out, and then the broker says you were playing the market and are only going to reimburse to the point that you should have known...guess what, you're out of the game and your talking to your lawyer, looking at substantial legal fees, hoping it will all turn out. Either way, you're out of the game temporarily, and perhaps permanently if it all goes against you.

Why take that chance? Just close it out. Point out that you didn't make the trade. Your audit trail should verify that contention.

OldTrader

 

[sprstpd]

Quote from Trader_Herry:

What will you do?

PS: By the way, I think you need to pay for bust fees so it isn't really "risk-free".

You just make a best guess on what to do and live with it.

You don't have to pay for bust fees on the exchanges that I trade on. Funny thing is that if you do get a bad bust against you, you do get charged if you want to have them review the trade again.

 

[blackhorseshoe]

ib=i been mugged broker.

 

[GTS]

Quote from OldTrader:

I think the basic unofficial "rule" for handling an error is simply to close it out. If you do anything other than this in essence you're playing the market. Now, if it turns out that your broker put it into your account in error, and now reverses it, you close that position out too.

Look at it this way: if you don't close it out, and the position goes on to wipe your account out, and then the broker says you were playing the market and are only going to reimburse to the point that you should have known...guess what, you're out of the game and your talking to your lawyer, looking at substantial legal fees, hoping it will all turn out. Either way, you're out of the game temporarily, and perhaps permanently if it all goes against you.

Why take that chance? Just close it out. Point out that you didn't make the trade. Your audit trail should verify that contention.

You are taking a chance either way.

If you didn't place the phantom trade and then you place a trade to close out a position that is in error then later they remove the erroneous trade then all you are left with is the trade that you did place. You can close that one too but again you may be facing steep losses depending on the timing (these things rarely are sorted out quickly, especially if the problems are widespread).

You say "point out that you didn't make the trade" but in fact you are suggesting that you do make the (closing) trade - at that point you are responsible for _that_ trade, no getting around that fact since you are the one that initiated it.

You can argue that you were just closing out the erroneous position but they can counter that you shouldn't have placed any trades once you noticed a discrepency in your account but instead you should have called first.

This has happened to me and MBT's position was exactly what I said, don't trade out of unexpected positions without talking to them on the phone first - placing a short order to close a fictious long position leaves you exposed on the short side when the dust settles.

I agree the one thing you shouldn't do is start trading the position as if it was valid, either dont touch it (period) or close it completely/immediately with a market order but I fully understand that in such a situation facing a huge loss that a trader may instictively try to trade the position to minimize the damage.

 

[sprstpd]

Quote from GTS:

I agree the one thing you shouldn't do is start trading the position as if it was valid, either dont touch it (period) or close it completely/immediately with a market order but I fully understand that in such a situation facing a huge loss that a trader may instictively try to trade the position to minimize the damage.

But in zzzap's case, the only way to "minimize damage" would be to get out of the position before the news event. And this implies a market order before the news event.

 

[GTS]

Quote from sprstpd:

But in zzzap's case, the only way to "minimize damage" would be to get out of the position before the news event. And this implies a market order before the news event.

Spoken with the benefit of hindsight.

 

[pbj]

Quote from sprstpd:

But in zzzap's case, the only way to "minimize damage" would be to get out of the position before the news event. And this implies a market order before the news event.

Consider the case where the position was placed into the wrong account or by some other mechanism is not a real position. If the position does not exist, the attempting to close the position creates a large position in the other direction. If you do not know whether you really have a position or not, there is no way to avoid risk one way or the other.

You can call IB, and the representative can say we will investigate this matter, and for now you can “manage your risk.” This doesn’t help at all if you do not know if the position is real or not.


The best way to avoid these problems is for IB to invest in the programmers and software testers so that these types of bugs do not occur. The IB customers did not sign up to be software beta testers.

 

[Lon Eagle]

Can I just add another 2 cents worth.

I think the OP was mad to post his latest post where he detailed the exact timings/thought process etc. I urge him not to post anymore on this thread.

It is obvious that IB don't want to pay out the full $52k and are discussing what settlement to ffer. The case could go to the authorities or not but for sure he does not want to admit anything without a lwayer vetting it, if it does go that far.

There is nothing to be gained by fully disclosing his hand or admitting something he may later regret.

 

[OldTrader]

Quote from GTS:


This has happened to me and MBT's position was exactly what I said, don't trade out of unexpected positions without talking to them on the phone first - placing a short order to close a fictious long position leaves you exposed on the short side when the dust settles.

One thing for sure, if they told you to call them first, then that's what I would do. You'll get no argument from me on that one. I would certainly like to have something in writing from them pertaining to that, rather just a verbal statement, since it's contrary to what many brokerage firms expect you to do.

OldTrader