IB can liquidate your positions whenever they want?

webbew · Aug 31, 2011

On Friday 8/19/2011, Interactivebrokers liquidated my 5 positions. The reason was I didn't have enough cash to cover option assignments. I reviewed my account statements the
following Sunday and found 1 account didn't have enough cash and 2 liquidations are valid. But the other 2 accounts had more than enough cash and margin. So 3 liquidations are obviously wrong. I contacted IB and ask them to restore my positions. After 3 days of delay I was told those liquidations would stand but I could file for compensation. Another 3 days later I was told those liquidations would stand and IB can liquidate whatever they want according to account agreement. Basically they are saying they can screw their customers whenever they want. I've been with IB for more than 10 years, I know their customer service is bad, but the trading system is ok. Now I know they just want to rip off small investors and they don't even care about their reputation.

webbew · Aug 31, 2011

Actually this would not happen at all if there were not wrong liquidations the previous day. I had ES Sept 1150P/1100P bear spreads and ES Sept 1150P/Aug 1100P calender spreads and some other positions. There were a brief bid and ask outage for Sept 1150P. At the time my Sept 1150P should be valued around 56. All other strikes bid and ask were fine(that's why I think IB did this intentionally to trap me). IB then valued my Sept 1150P at only 42 and my net liquidation value immediately off by about 40%, which resulted in liquidations. I was in panic mode because all my spreads are no longer safe and all my accounts could be wiped out easily with this kind of liquidation. I forgot to adjust my cash position.(All I needed was sell Sept 1150P, short ES and buy Sept 1150C to increase cash.)
I contacted IB immediately they waited 3 days they busted all these liquidations and at that time I could buy those positions from market at much lower prices.

Hurricane · Aug 31, 2011

Liquidations are automated at IB. No one was looking at your account deciding to screw you. So what triggered the liquidations? If they were unnecessary than there should be a conflict between their programming logic and your account position at the point of time they were liquidated.

ammo · Aug 31, 2011

Quote from webbew:

On Friday 8/19/2011, Interactivebrokers liquidated my 5 positions. The reason was I didn't have enough cash to cover option assignments. I reviewed my account statements the
following Sunday and found 1 account didn't have enough cash and 2 liquidations are valid. But the other 2 accounts had more than enough cash and margin. So 3 liquidations are obviously wrong. I contacted IB and ask them to restore my positions. After 3 days of delay I was told those liquidations would stand but I could file for compensation. Another 3 days later I was told those liquidations would stand and IB can liquidate whatever they want according to account agreement. Basically they are saying they can screw their customers whenever they want. I've been with IB for more than 10 years, I know their customer service is bad, but the trading system is ok. Now I know they just want to rip off small investors and they don't even care about their reputation.

if the market was puking and you had long profitable puts,your saying they could liquidate you and take your puts...very unlikely without a reason,i think that would be stealing and punishable by law

jayre · Aug 31, 2011

Quote from webbew:

On Friday 8/19/2011, Interactivebrokers liquidated my 5 positions. The reason was I didn't have enough cash to cover option assignments. I reviewed my account statements the
following Sunday and found 1 account didn't have enough cash and 2 liquidations are valid. But the other 2 accounts had more than enough cash and margin. So 3 liquidations are obviously wrong. I contacted IB and ask them to restore my positions. After 3 days of delay I was told those liquidations would stand but I could file for compensation. Another 3 days later I was told those liquidations would stand and IB can liquidate whatever they want according to account agreement. Basically they are saying they can screw their customers whenever they want. I've been with IB for more than 10 years, I know their customer service is bad, but the trading system is ok. Now I know they just want to rip off small investors and they don't even care about their reputation.

Here you go; trading with IB on margin (in your case options) is picking up nickels in front of a bulldozer. You save on commission and then you give all of it back when you get liquidated. If someone is buying stocks with cash IB is perfect, if you close all your positions when leaving the computer you are good as well. Otherwise you are sitting on a ticking time bomb...

EdgeHunter · Aug 31, 2011

Quote from webbew:

On Friday 8/19/2011, Interactivebrokers liquidated my 5 positions. The reason was I didn't have enough cash to cover option assignments. I reviewed my account statements the
following Sunday and found 1 account didn't have enough cash and 2 liquidations are valid. But the other 2 accounts had more than enough cash and margin. So 3 liquidations are obviously wrong. I contacted IB and ask them to restore my positions. After 3 days of delay I was told those liquidations would stand but I could file for compensation. Another 3 days later I was told those liquidations would stand and IB can liquidate whatever they want according to account agreement. Basically they are saying they can screw their customers whenever they want. I've been with IB for more than 10 years, I know their customer service is bad, but the trading system is ok. Now I know they just want to rip off small investors and they don't even care about their reputation.

Can an IB customer go into Arbitration (via account agreement) ... If so do so and put out a press release at the same time (if your lawyer says that is ok) and call them and bitch constantly...

Squeaky Wheel... etc..

the1 · Aug 31, 2011

Not necessarily. In a fast market option spreads can get out of whack with prices, causing the liquidation. I suppose the algorithm looks at the price a person would have to exit at should they choose to do so and liquidates the position. IB is notorious for this. Precisely the reason I will not trade options or futures with them. Any kind of leveraged trading with IB is an invitation to disaster. You could have the perfect hedge on and if prices get mis-quoted out you go.

Quote from ammo:

if the market was puking and you had long profitable puts,your saying they could liquidate you and take your puts...very unlikely without a reason,i think that would be stealing and punishable by law

jayre · Aug 31, 2011

Quote from the1:

Not necessarily. In a fast market option spreads can get out of whack with prices, causing the liquidation. I suppose the algorithm looks at the price a person would have to exit at should they choose to do so and liquidates the position. IB is notorious for this. Precisely the reason I will not trade options or futures with them. Any kind of leveraged trading with IB is an invitation to disaster. You could have the perfect hedge on and if prices get mis-quoted out you go.

+1

blackjack007 · Sep 1, 2011

Quote from the1:

Not necessarily. In a fast market option spreads can get out of whack with prices, causing the liquidation. I suppose the algorithm looks at the price a person would have to exit at should they choose to do so and liquidates the position. IB is notorious for this. Precisely the reason I will not trade options or futures with them. Any kind of leveraged trading with IB is an invitation to disaster. You could have the perfect hedge on and if prices get mis-quoted out you go.

yeah you need to keep a HUGE margin buffer with IB because of their auto-liquidation. i had a short position that should have been worth -$100 instead jump to over -$100,000 because of a bullshit mark value. something like that can cause auto-liquidation

anyone who defends IB's auto-liquidation practice as being "safe" hasn't seen this happen to them yet, but they will someday and it won't be pretty when it does

bearmountain · Sep 1, 2011

Quote from EdgeHunter:

Can an IB customer go into Arbitration (via account agreement) ... If so do so and put out a press release at the same time (if your lawyer says that is ok) and call them and bitch constantly...

Squeaky Wheel... etc..

i agree with edgehunter. take a closer look at the account agreementm, take them to arbitration. most likely you will get compensated.