avoiding automatic liquidation by IB

[Sig]

Right, but wouldn't the Algorithm -- peace and blessings be upon it -- at the very least verify that the position it's auto-liquidating would result in an INCREASE rather than a decrease to the account's excess liquidity? It wouldn't ever take an action that would increase the margin deficit which...closing an hedging long position would do, would it not?

Oh absolutely. In a world where The Algorithm, may it protect us from misguidance and evil, behaved rationally and there were humans who were accountable for It's actions. However in cult land of IB The Algorithm, may it be exalted, can do no wrong therefore why would you and I, mere humans, dare criticize it?
In all seriousness, IB gives you cheap margin rates (and until recently commissions) because they hire script reading "customer service" people for almost nothing and offload all their operations and risk management onto a computer. Their instructions to the software team are to build to the average trader and simply round off those pesky edge cases, that all us doing software know take up an inordinate amount of time, in favor of IB. In other words, they've consciously decided to provide an inferior product in CS and items like this in favor of low cost that drives volume and fully expect to screw folks like us who will then most likely leave...that's built into their core business model. Of course they can't admit that to the low IQ "customer service" team, so they instead build up this god-like figure (that they seriously and unironically refer to in caps as The Algorithm in communication with customers!) that is infallible, provide no means for them to communicate with this figure even if they wanted to, and that breeds the "customer is always wrong" mentality we've all experienced. There's really no point in fighting it, if you got Peterffy drunk one night he'd probably tell you he's fully aware of the issues and made a conscious decision not to allocate resources there. So best you can do is leave and pay it forward by forewarning others who are like us. Probably won't hurt IB any but may save a few folks like us going down the same path, plus it's fun to poke fun at their fanboys

 

[Sig]

I've been there and had this happen to me. Here's the way I "fixed it" with IB.

First off, the "sell the day before" advice does NOT work for me. If I have a 15 point SP fly, even at the midpoint the day before I'm not making beans. In fact I'm sometimes putting it on the day before expiry.

If you have a leg ITM or even close, that algo may start chipping away at all that you own without warning. The crap it sells makes no sense at all and the prices can be awful. It's a nightmare.

If I'm ITM on a leg around 2pm on expiry day (sometimes earlier depending on the circumstances), I buy a ATM straddle or a deep OTM put/call for the next expiration - typically a few days away. If I'm looking to squeeze the last few hours out of a position, the next expiry generally won't move near as much if it's set up properly. Whether it's a put or call depends on the exposure eg., if you only have a long call ITM buy a put. If I have flies going both ways bouncing around the midpoint I'll do the straddle. Right after I liquidate the expiring spread I liquidate the next expiry position.

I test my post expiry margin by looking at what's ITM (or may be) and then setting up an order for that many futures and doing "check margin" to see where things are. It's something like 12K - 14K typically per naked future on ES at IB. Once you have the next expiry position in place, check it again with the futures position and it should be much lower. This lets me ride everything out til a few minutes before close without worrying about the liquidation algo visiting me. Should we have to do this? Of course not. But hopefully this helps some of you guys that have been bitten.

That's very clever, thanks for sharing it. I used to do something similar to trick It by entering an opposite, out of market limit order on the verticals I had on to prevent It from incorrectly interpreting a widening of bid/ask spreads as my vertical losing more than it was possible for it to lose.

 

[ktm]

That's very clever, thanks for sharing it. I used to do something similar to trick It by entering an opposite, out of market limit order on the verticals I had on to prevent It from incorrectly interpreting a widening of bid/ask spreads as my vertical losing more than it was possible for it to lose.

It's amazing the things we have to do just to achieve some basic and fair operation of the platform.

 

[d0rian]

Yep, that is exactly my problem. In my view the opposite should have happened.

I opened a complaint with IB. I do have the feeling they are looking into it seriously. Fingers crossed for a good outcome.

Well please post once you hear back / get a resolution...since if that's really what happened -- the Algorithm auto-liquidated a long position that had the effect of worsening your margin deficit -- that would seem to seem to fly in the face of something pretty fundamental about what the Algorithm is even supposed to do; in fact it would be detrimental to IB's own interests in that they (via their customer) would be even more exposed.