IB Great at catching erroneous trades

[NKNY]

I must IB credit for actually catching contacting me about a bad fill in KNXA this morning before I contacted them.

I went long again this morning on a bunch of stocks and as I was reviewing me executions I noticed that my order for KNXA was filled at 21.82.

Just as I was getting ready to contact IB, I get an email notice

"We have received word of a potential error trade filing concerning a trade in your account. The following trade is currently under review: Bought 83 KNXA at 21.82"

Keep in mind this is only about 2 minutes after the execution.

A little later they busted the trade....

Thanks IB...

Nick

 

[Don87109]

Quote from NKNY:

I must IB credit for actually catching contacting me about a bad fill in KNXA this morning before I contacted them.

I went long again this morning on a bunch of stocks and as I was reviewing me executions I noticed that my order for KNXA was filled at 21.82.

Just as I was getting ready to contact IB, I get an email notice

"We have received word of a potential error trade filing concerning a trade in your account. The following trade is currently under review: Bought 83 KNXA at 21.82"

Keep in mind this is only about 2 minutes after the execution.

A little later they busted the trade....

Thanks IB...

Nick

I don't think you would be thanking IB if the trade executed at a favorable price. Furthermore, if you had a corresponding hedging transaction and the trade was busted your hedge would then be naked. Again, you'd likely be cursing IB instead of praising them.

Busting trades is an unconscionable practice and should be illegal. If you made a mistake trading you have no similar recourse.

I guess I should point out that it may not have been IB's fault, I think it could be an exchange problem.

Don

 

[sprstpd]

Quote from NKNY:

I must IB credit for actually catching contacting me about a bad fill in KNXA this morning before I contacted them.

I went long again this morning on a bunch of stocks and as I was reviewing me executions I noticed that my order for KNXA was filled at 21.82.

Just as I was getting ready to contact IB, I get an email notice

"We have received word of a potential error trade filing concerning a trade in your account. The following trade is currently under review: Bought 83 KNXA at 21.82"

This probably means the place where it got executed contacted IB about the erroneous trade first. You should probably be thanking the exchange.

Contrary to the previous poster, it seems like busting procedures should be in place at all exchanges. They protect people from losing all their money on a typo or mistake. However, these busting policies need to be explicitly stated and adhered to. No favoritism please and no wishy washy rules involving subjective criteria. Just write down percentages and points off as busting guidelines and stick to them. Unfortunately, this isn't how it happens.

 

[def]

Quote from Don87109:

I don't think you would be thanking IB if the trade executed at a favorable price. Furthermore, if you had a corresponding hedging transaction and the trade was busted your hedge would then be naked. Again, you'd likely be cursing IB instead of praising them.

Busting trades is an unconscionable practice and should be illegal. If you made a mistake trading you have no similar recourse.

I guess I should point out that it may not have been IB's fault, I think it could be an exchange problem.

Don

If a trade is executed out of range you better know the exchange bust rules before hedging the transaction. Trade busts are determined by the exchange but there are many exchanges which require the broker to contact them within a specified period of time.

As for busts being an unconscionable practice, I completely disagree. While software should check and not allow input errors, not all firms have adequate controls (for the record IB's controls are exceptionally good). Now if someone inverts a price and size it could potentially be a billion dollar error and not only wipe the client but take all the firms clients and possibly a bank down with it. Who ends up paying then? Possibly the exchanges clearing members and other innocent bystanders. Granted most errors are on the order of a few thousand bucks but you need to be consistant. I personally think the best policy is to rebook the trade(s) to a fair price plus a small penalty. The key is that an exchange should have a clear policy and those trading on that exchange should know exactly what it is and hedge/react accordingly.

 

[Don87109]

Quote from def:

If a trade is executed out of range you better know the exchange bust rules before hedging the transaction. Trade busts are determined by the exchange but there are many exchanges which require the broker to contact them within a specified period of time.

As for busts being an unconscionable practice, I completely disagree. While software should check and not allow input errors, not all firms have adequate controls (for the record IB's controls are exceptionally good). Now if someone inverts a price and size it could potentially be a billion dollar error and not only wipe the client but take all the firms clients and possibly a bank down with it. Who ends up paying then? Possibly the exchanges clearing members and other innocent bystanders. Granted most errors are on the order of a few thousand bucks but you need to be consistant. I personally think the best policy is to rebook the trade(s) to a fair price plus a small penalty. The key is that an exchange should have a clear policy and those trading on that exchange should know exactly what it is and hedge/react accordingly.

If the busted trade was re-filled at the original fair price plus a small penalty to the busting party, I would agree with you.

I have had a couple of options trades busted and there is no way to know that they were away from the market. Percentage wise option prices can jump pretty significantly since they are leveraged instruments. As I recall, on one of the busts I had established a hedge and I was caught naked. Luckily, the broker resubmitted the order and it got filled at a decent price.

Anyway, I still think this is an unfair practice that needs fixing. It is a major risk for the retail options trader since they frequently hedge. But even stock traders can get caught. Suppose you bought a stock and then sold it only to later find your initial buy was busted. You would then have a short position to cover and if the stock had risen since the bust I'll bet you would not have much sympathy for the exchange.

Don

 

[jficquette]

Quote from def:

If a trade is executed out of range you better know the exchange bust rules before hedging the transaction. Trade busts are determined by the exchange but there are many exchanges which require the broker to contact them within a specified period of time.

As for busts being an unconscionable practice, I completely disagree. While software should check and not allow input errors, not all firms have adequate controls (for the record IB's controls are exceptionally good). Now if someone inverts a price and size it could potentially be a billion dollar error and not only wipe the client but take all the firms clients and possibly a bank down with it. Who ends up paying then? Possibly the exchanges clearing members and other innocent bystanders. Granted most errors are on the order of a few thousand bucks but you need to be consistant. I personally think the best policy is to rebook the trade(s) to a fair price plus a small penalty. The key is that an exchange should have a clear policy and those trading on that exchange should know exactly what it is and hedge/react accordingly.

IB could solve a lot of problems by requiring orders to be verified before going live.

The only reason I can see for IB to refuse to do this is because now they make commissions off of bad trades and if they eliminated those then they would lose money.

John

 

[SethArb]

IB does have a percent error safeguard feature ...

that helps prevent errors ...

I believe the customer can set the filter to
as little as he desires.

one problem I see is the various exchanges have
different rules on fines for errors.

 

[fatrat]

Quote from Don87109:

I don't think you would be thanking IB if the trade executed at a favorable price. Furthermore, if you had a corresponding hedging transaction and the trade was busted your hedge would then be naked. Again, you'd likely be cursing IB instead of praising them.

Busting trades is an unconscionable practice and should be illegal. If you made a mistake trading you have no similar recourse.

I guess I should point out that it may not have been IB's fault, I think it could be an exchange problem.

Don

Whoh, that's scary. I just started using a pair strategy recently that's been working wonders and I never even considered the possibility of a busted trade causing a naked hedge.

Thanks for informing that this was even a possibility.

 

[def]

Quote from jficquette:

IB could solve a lot of problems by requiring orders to be verified before going live.

The only reason I can see for IB to refuse to do this is because now they make commissions off of bad trades and if they eliminated those then they would lose money.

John

That is a lame comment. I know of no broker that would want a client to submit a trade that is going to be busted. BUSTED TRADES ARE A MAJOR HASSLE FOR BOTH THE CLIENT AND THE BROKER. First, exchanges often charge the party the made the error. Second, brokers have to track down the client and do a number of other manual tasks to reverse the trade. Third, clients want speed, they don't want to hit "are you sure" every trade. However, if you want to do that with IB, you can by entering all of your orders via the ticket window.

As mentioned in the post above, you can set filters within the TWS. IB also has other safeguards in place which shouldn't allow anyone to blow out an account but that's another topic.


Oh, and by the way, when a trade gets busted we reverse the commission charge as well.

IB's revenues will be maximized when our clients are profitable. Your comment infers we are unethical and that is really a load of BS. If we wanted to nickel and dime you, we'd charge SEC fees, wire fees, withdrawal fees, etc. We don't. Your comment is out of line and flat out wrong.

 

[SideShowBob]

I'm with def. I've had a trade busted and it took a lot of manual effort to reverse it. And the commissions were also reversed as def said. So I don't see how they can make money doing this...unless they're like the bank in the SNL commercial that makes money giving change -- how do they do it -- volume!!!