Brokerage changes rules and wipes out my account. Is there any recourse?

P

pipepuller

Let me know if there is a better forum to post this, but I saw risk management in the title so I thought I would post. Perhaps someone can give some advice?

A little background: I was entering Calendar Spreads on the VIX for the past several months. At no time was there any type of margin requirements to do this, or any types of warnings about the product. On Aug 8 the brokerage firm I was dealing with sent an email out stating that there would be new margin requirements for these trades as the risk has increased.

I then contacted the margin dept on Aug 9 and at that time they said everything seemed fine and stated that if there were any margin issues they would contact me prior and if no response would then move forward liquidating as necessary 10 min prior to market close.

Aug 10 - the VIX spikes and at 10 am they started liquidating my account with no warning. To sum it all up by lunch time they had cleared my account out and put it in a deficit and by 3pm I got a phone call requesting funds in 5 days. To top it off at 3:30pm they sent me any email stating that I should review the margin requirements in my account and start closing positions, which of course came 5 hours too late.

Can they do this to your account? Just change how they value your spreads, then just close it out? Do I have any options?

Thanks,
 
Quote from pipepuller:


A little background: I was entering Calendar Spreads on the VIX for the past several months. At no time was there any type of margin requirements to do this, or any types of warnings about the product. On Aug 8 the brokerage firm I was dealing with sent an email out stating that there would be new margin requirements for these trades as the risk has increased.
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Although the way they handled the situation seems a bit harsh (IB perhaps?), they are well within their rights.

Also, you seem a little bit naieve to think that calendar spreads on VIX (which are largely correlated to cash VIX movements) do not require substantial margin.
 
You signed a contract when you opened your account...
Giving your broker the right to do virtually anything...
If you go and try to blow your brains out.

Your ** lack of experience **...
Is the reason your account got wiped out.

These are golden opportunities to learn life-long lessons.
You SHOULD learn 100 times more from your disasters...
Than from your successes.
 
I just signed up another new brokerage account, they send up a policy statement. According to the contract, yes they can change it anytime, they can liquidate the position without contacting you.
 
what surprises me actually is that margins haven't been raised on VIX futures since the beginning of their rapid ascent. come to think of it, nor are ES margins.
 
On Aug 8 the brokerage firm I was dealing with sent an email out stating that there would be new margin requirements for these trades as the risk has increased.
More...

Sorry for your loss; the broker is probably covered since they sent out that email, but I agree the mis-communication and lack of notification stinks, it's just a shoddy knee-jerk way to do business, and you have the right to be pissed.

Lesson to be learned is if you're carrying any sort of overnight position on shoestring margins, you have to set the bar much higher than published maintenance margins and anticipate this stuff, especially if you're dealing with a deep discount broker who won't give you the benefit of a phone call.
 
I agree.. I should have been more knowledgeable about what I was trading, I mean who can you really blame I suppose?

My issue was that I had no maintenance margin or initial margin requirements to hold these positions for the past several months. So I thought there would at least be some level of accountability on IB, but perhaps I expect too much.

Heck their margin department said I was fine just the day before. Losing your account is one thing, but owing more is a bit hard to swallow!
 
Quote from erlewine:

Sorry for your loss; the broker is probably covered since they sent out that email, but I agree the mis-communication and lack of notification stinks, it's just a shoddy knee-jerk way to do business, and you have the right to be pissed.

Lesson to be learned is if you're carrying any sort of overnight position on shoestring margins, you have to set the bar much higher than published maintenance margins and anticipate this stuff, especially if you're dealing with a deep discount broker who won't give you the benefit of a phone call.
More...

what is the purpose of the phone call? to ask you for more funds? ridiculous.
to let you liquidate on your own? you shouldn't haven't let yourself get into that kind of situation.
 
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