IB Price Caps - Need Advice

N

narafa

Fellows,

Need some advice here. IB imposes price caps for limit and market orders (mainly for commodity futures) based on a certain algorithm. I got multiple cases where this caused very serious problems to me, mainly because of flaws in the algorithm they are using.

The first case was when I was trying to submit a buy limit order in the pre-open session for Live Cattle at the limit up price, however, IB capped my order price to a lower price and as usual saying that the price cap is to comply with exchange & regulatory requirements of maintaining a fair and orderly market.

My question is, under what law/regulation are they allowed to withhold an order where it's price is within the legitimate daily limit as published by the exchange.

PS: My order price was 92.525 and they announced capping it at 92.125 (The Max. price for the day as published on the exchange website was 92.525, so my order was within the daily limit).

The second case I incurred caused me a loss of around $10k. It was in Palladium futures. Just to highlight, I am not a novice or rookie trader and I know what I am doing. Been trading since 2001 all types of instruments, simple & advanced strategies and I have been with IB since 2006, so it's not that I am just new to the market and don't understand the risks.

What happened in that trade is that I bought Palladium futures on 12-Mar-2020 early in the US session. That day was a carnage in the markets, Palladium no exception. At the time when I bought, Palladium was already down 267.3 dollars (Around 12%). The market was trading 1950/1980, my buy limit order went through with no issues and got executed. 10 mins later, I decided to close the position because I didn't see the rally I expected and concluded that the market will probably go lower. So I placed a sell limit order and suddenly I was faced with a price cap message that my order will be capped at 2,100 something. I was stunned. The market is trading infront of me 1950/1980 and has been in this range for at least 10 mins.

I tried doing everything I can, place a market order, nothing, same price cap, tried converting the position into a calendar spread by shorting the next Sep expiry, same, it won't allow me to short because of the price cap.

In those attempts, I spent around 5 mins. Then I decided to call IB. I did and of course because it was a very busy day in the market, I had to wait for almost 15 mins before someone picked up the call and as easily and magically, he removed the price cap temporarily and I got out at $1,860 (losing a $10k) instead of getting out properly with a small loss (probably $2k-$3k).

Can someone help? I can see it's clearly a price cap algorithm flaw as it doesn't adjust to current market prices. Moreover, my buy limit order was not capped, but my sell was. This is a lockdown which is totally unacceptable.

Regards,
Nader
 
You gotta play by the broker's rules, unfortunately. So your only way out is to change brokers. IB is not going to change their ways no matter how much we complain.

I do understand some of the benefits that IB brings to the table. There are plenty of FCMs out there. I use AMP and are very happy with them, but can't recommend them to you as they do not allow you to be short any options.

So either move a/c or set up a second account somewhere to get around these kind of BS and have some flexibility to lay off risk elsewhere.

Oh, and do take your case to arbitration. IB needs to be hit with these on a regular basis for them to even consider stopping this bullshittery
 
Can share my experience in stocks.

I've got an alert that those Price Caps are being introduced around the end of Sept. 2019, and an option to opt-in for IB algo which would assure limit orders will get filled if that happens. I didn't like the sounds of it and IB support confirmed that in volatile markets those orders now can fill at a worse price instead of being canceled. And that's what that "feature" was about.

So I never agreed and, on practice, it didn't impact my executions heavily relying on LMT orders until one of the recent halts. The desired effect was - I'd rather get no fill than fill at a worse price. During one of the trading halts - I got few orders canceled my IB around the open with price-caps related errors. But that was only once and didn't happen again. It's likely IB done tons of volatility-related adjustments afterward.

I'm guessing what you're seeing are edge case scenarios due to a combination of those wild recent price swings + great volatility increase and halts. Happening all together after a long period of calamity.
 
ValeryN said:
Can share my experience in stocks.

I've got an alert that those Price Caps are being introduced around the end of Sept. 2019, and an option to opt-in for IB algo which would assure limit orders will get filled if that happens. I didn't like the sounds of it and IB support confirmed that in volatile markets those orders now can fill at a worse price instead of being canceled. And that's what that "feature" was about.

So I never agreed and, on practice, it didn't impact my executions heavily relying on LMT orders until one of the recent halts. The desired effect was - I'd rather get no fill than fill at a worse price. During one of the trading halts - I got few orders canceled my IB around the open with price-caps related errors. But that was only once and didn't happen again. It's likely IB done tons of volatility-related adjustments afterward.

I'm guessing what you're seeing are edge case scenarios due to a combination of those wild recent price swings + great volatility increase and halts. Happening all together after a long period of calamity.
More...

Thanks Valery. I also never experienced any issues with price caps with IB until the markets got crazy in the last 4 weeks. I am sure their algorithm for price caps has flaws, otherwise, it wouldn't cap an order which is within the approved exchange price limits for the day.

In practice, a LMT order is a LMT, it can't get filled at a worse price, it can only get a better price or no execution and this happened to me last Wednesday in the XTN ETF, I had a sitting GTC limit order to buy and the market was on halt and when it resumed trading I got a better fill.

There are no price limits or caps in stocks and ETFs whatsover (As far as my experience goes). I just placed a LMT buy order on BA at $20 and it went through with no price cap warnings. In futures, it's different and every instrument & exchange have a different set of rules. Some contracts have daily price limits, some don't. Some contracts go into volatility halts, run into a volatility auction for like 2 mins and then resume trading again, and so on.

Anyway, thanks again for your feedback.
 
DarthSidious said:
You gotta play by the broker's rules, unfortunately. So your only way out is to change brokers. IB is not going to change their ways no matter how much we complain.

I do understand some of the benefits that IB brings to the table. There are plenty of FCMs out there. I use AMP and are very happy with them, but can't recommend them to you as they do not allow you to be short any options.

So either move a/c or set up a second account somewhere to get around these kind of BS and have some flexibility to lay off risk elsewhere.

Oh, and do take your case to arbitration. IB needs to be hit with these on a regular basis for them to even consider stopping this bullshittery
More...

Thanks for the feedback. I already requested to speak to their compliance and if that didn't yield anything useful, I will file a FINRA complain for sure. I know about AMP, they have v.good reputation, but I am used to IB since 2006 and selling naked options is one of the strategies I use.

I will do my best to take this to arbitration after FINRA (If not resolved with their compliance).

Thanks again.
 
narafa said:
Thanks Valery. I also never experienced any issues with price caps with IB until the markets got crazy in the last 4 weeks. I am sure their algorithm for price caps has flaws, otherwise, it wouldn't cap an order which is within the approved exchange price limits for the day.

In practice, a LMT order is a LMT, it can't get filled at a worse price, it can only get a better price or no execution and this happened to me last Wednesday in the XTN ETF, I had a sitting GTC limit order to buy and the market was on halt and when it resumed trading I got a better fill.

There are no price limits or caps in stocks and ETFs whatsover (As far as my experience goes). I just placed a LMT buy order on BA at $20 and it went through with no price cap warnings. In futures, it's different and every instrument & exchange have a different set of rules. Some contracts have daily price limits, some don't. Some contracts go into volatility halts, run into a volatility auction for like 2 mins and then resume trading again, and so on.

Anyway, thanks again for your feedback.
More...

Yep, that's probably quite different for futures. For stocks, in September, IB heavily promoted their automatice price management algo "better" handling price caps if limit order would face them. Basically TWS would ask you every time you send a limit order if you want to turn that thing on. Most people probably just clicled ok and didn't give it a second thought. I spoke with IB supprt about this as I couldn't find a way to permanently turn those suggestions off and they did indeed confirm that LMT orders with that feature could fill at a worse price in very volatile environments. If not used - order can fail. That blew my mind as I couldn't get why would anyone using LMT order in a first place would be or getting potentially filled at a worse price...

Sorry to hear about your loss.
 
Do you really think that, giving what's happening, anyone will take your complaint seriously? All they are going to say - we are protecting our customers in these volatile times! Case closed. Join a prop firm that will let you do whatever you want.
 
qlai said:
Do you really think that, giving what's happening, anyone will take your complaint seriously? All they are going to say - we are protecting our customers in these volatile times! Case closed. Join a prop firm that will let you do whatever you want.
More...

This is what they have been telling me already in response to my tickets. They kept copying and pasting the same silly response over and over. I am asking them to investigate a certain case and they respond generally that they won't remove their price caps for any symbol or for any account, something which I am not asking them to do anyway.

Thanks a lot for your post, really appreciated. I will think about the prop firm, although I don't think I need one, I might need to look for another broker actually.
 
Sorry I didn't read your post (it's very long) but:

If you get a price cap in TWS (happens all the time with options) there's also a remark that you can contact the trade desk to solve it.

I guess (why else should this message be there?) they then will lift the constraint either on the specific instrument, the class or even maybe for full account (I don't know).

Example: say you get a price cap on the MSFT jan21 p100. If you contact them about this, it could be that they lift the cap on:

1) this option
2) all MSFT options
3) all options
4) all assets

If they are willing to do point 3 or 4 your problem might be solved for the future. Just saying that they seem to indicate (in TWS) that they are willing to lift a constraint on a per customer basis. It could be that they just need an explicit confirmation from the customer so that they're not liable. And if you can ask it for 1 instrument you would say you can also ask it for 1000 instruments...
 
qwerty11 said:
Sorry I didn't read your post (it's very long) but:

If you get a price cap in TWS (happens all the time with options) there's also a remark that you can contact the trade desk to solve it.

I guess (why else should this message be there?) they then will lift the constraint either on the specific instrument, the class or even maybe for full account (I don't know).

Example: say you get a price cap on the MSFT jan21 p100. If you contact them about this, it could be that they lift the cap on:

1) this option
2) all MSFT options
3) all options
4) all assets

If they are willing to do point 3 or 4 your problem might be solved for the future. Just saying that they seem to indicate (in TWS) that they are willing to lift a constraint on a per customer basis. It could be that they just need an explicit confirmation from the customer so that they're not liable. And if you can ask it for 1 instrument you would say you can also ask it for 1000 instruments...
More...

Thanks. The reply I got from their trading support is that price caps WILL not be removed for any particular instrument or for the account under any circumstances or conditions.

So what you are mentioning is not feasible as confirmed by them. My issue is not with price caps on options (I never experienced this) and I believe there are no price caps in the options market at all. My problem is mainly with futures.

Thanks again for your reply and please read the original post when you have time.
 
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