Interactive Brokers and automatic liquidation

[OldTrader]

Quote from ddaytrader:



However, Interactive Brokers did not fill my order for nearly 30 minutes, and when they did fill it, it was after the market broke lower. I was filled at a price more than 50 pips lower than my stop order. This was a stop market order. IB's customer service acknowledges that the order should have been filled about 55 pips higher than it was. However, my request for compensation has, nearly a month later, gone unanswered. When I inquire, I am simply told that "senior management is aware of the issue."

I guess I'm wondering about some of the other details. For instance, were you watching the trade? Did you call IB when you noticed your trade was not executing? Hard to say what the error could have been, but it certainly sounds like there was one. I'd say the only factor that you didn't address was what you did when/if you noticed that the order was not executing. Sometimes people leave out important details. That said, it sounds like they have acknowledged when you say "customer service acknowledges...". So they may be moving slowly but if I were you I wouldn't panic just yet. There have been many other cases where they have accepted responsibility, and have compensated. If memory serves, it's always been a month or two down the road. It take a while for the machinery to grind through to a conclusion.

I will say that while this is not first time I had a problem with an FX trade at IB, it is the largest error in their favor, and it is the first time that they have not done the right thing in a timely manner.

Let's clarify something here: This isn't an error "in their favor". They were simply executing a trade...they weren't buying/selling for their own account against you in the forex market.

I am still trading with Interactive Brokers, but my trust level is destroyed, and I am very nervous about whether my stop orders, especially stop loss orders, will be honored.

I've been with IB for 11 years or so. Never had the experience of a stop not executing, or any other type of failed trade. I'm wondering if there is something peculiar to the forex market that would account for this.

because should an autoliquidation take place at a price unjustifiably unfavorable to you, you might find it very difficult to get Interactive Brokers to act rightly.

autoliquidations are never going to be at a "convenient" time to you. They occur when something is moving against you. And therefore, by definition, I'm sure most traders will find that to be "unfavorable". A good rule of thumb though would be to not trade illiquid securities, and don't margin yourself to the hilt. These are both prescriptions for problems whether you trade with IB or anyone else. BTW, I've never had an autoliquidation either in the 11 years I've traded with IB. I trade futures and stocks.

I am hoping Interactive Brokers does the right thing, but after more than 30 days, I would have to say that Interactive Brokers has been, in this particular case, untrustworthy.

30 days is not the definition of "untrustworthy". I'm sure they have their bureaucracy just like most other large organizations. Why don't you wait until they give you some type of answer, either pro or con, then come back here and update us as to what took place. In the meantime, how about filling in some of the other details that I mentioned above?

 

[stock777]

One problem is , how long did it take before you reported it.

If it was a considerable period of time, then they would be less likely to rectify it.

Otherwise, any error on their part can be gamed.

Frankly, Im not a big fan of unmanaged trading, and you do accept certain risks when you walk away.


That said, properly formatted orders SHOULD execute.

 

[jayre]

Quote from blackjack007:

IB does not use the same PM formula as other brokers.

IB's calculation offers less leverage, but it's also less volatile (the margin changes less as the market moves)

Not correct from what I have seen. Ib portfolio margin offers more leverage then other broker, but the margin is extremely volatile (the margin requirment can go up by 30% overnight in some cases, without notice).
Using PM with Ib increases the risk of autoliquidation even more.

 

[rmorse]

The margin requirements for Portfolio Margin accounts are calculated in the same way at all Prime Brokers. This haircut is the minimum assets required for the portfolio. Every broker can then ask for more, but not less capital at their discretion. Many recently have raised margin requirements with the elevation of the VIX. It can happen to everyone, but not all firms auto liquidate. Some, when possible are able to take more effort to contact the client to either add funds of cut back the position. This is an advantage to using an introducing broker like myself.

 

[ddaytrader]

Quote from stock777:

One problem is , how long did it take before you reported it...

I was not watching the market at the time the trade should have executed. I entered the order at approximately 9:40 AM EDT and left my office.

I received a trade alert approx. 10:08 AM EDT to my mobile phone.

I checked thew alert, and I was suprised to see the fill was 55 pips below my stop order level. I at first assumed that there was news and an intraday gap through my stop. When I pulled up a chart, I saw that there had been no gap, and the break, while sharp, was orderly. I did not know what was going on, so I immediately closed the position for what amounted to a small 10-12 pip profit (I closed it at the market, and did not care whether it would be a profit or a loss - one of my rules is if something happens that makes no sense to me, close now and ask questions once flat.

I contacted customer service within a few hours after I got back to my office and I was able to check time and sales, etc.

Customer service rep also stated at that time that there had been a problem with EUR.CHF trades that day as well, and he had been unaware that the problme has affected any EUR.USD trades until I phoned in.

I have a screen shot of the audit trail showing the time and type of order and a screen shot of time and sales that includes all the data between the time my order was acknowledged by the system and the time my order was filled.

When I say "error in their favor," I mean that it is one that caused me a loss.

To oldtrader, I opened my first IB account six years ago. In that time, any trade errors were corrected within 48 hours. Given my past experience with Interactive Brokers, this 34 day delay in doing the right thing does indeed seem "untrustworthy to me. They have the same documentation that I have. The only possible business reason for their delay has got to be that they are trying to determine if this is something they are responsible to cover, or if their trade agreements relating to fore and electronic systems shields them from liability.

You may think differently, and that is fine. But it is my money, and the documentation I have is so clear that I am convinced that the only reason it has not been taken care of is that Interactive Brokers is trying to figure out how they can make the case that they are off the hook for this.

I will also say that all I lost was some profit. I would have been far more upset had this error on their part been a stop loss rather than a stop entry. In that case, not only would I have suffered a loss, I'd have suffered a loss greater than my risk control would have dictated. And in Forex, a fifty tick miss on a stop market entry during a non-news period is huge.

 

[Businessman]

Quote from ddaytrader:

I was not watching the market at the time the trade should have executed. I entered the order at approximately 9:40 AM EDT and left my office.

I received a trade alert approx. 10:08 AM EDT to my mobile phone.
..

Your posts aren't about auto liquidation, so are a bit off topic..

I dont think you should be compensated much in this situation, the trade could have gone back in your favour after the stop was hit (but didn't execute) and so you could almost as easily had 'positive slippage' after 30 minutes in this situation.

Obviously anytime you get positive slippage you arent going to offer the money back to IB.

I think about 5 or 10 pips worth of compensation is all you should get. This reflects the long term loss expectancy to you based on this type of error.


Personally i wouldnt even bother making a claim for compensation in this situation, its a waste of everyones time.

 

[ddaytrader]

Quote from Businessman:

Your posts aren't about auto liquidation, so are a bit off topic..

I dont think you should be compensated much in this situation, the trade could have gone back in your favour after the stop was hit (but didn't execute) and so you could almost as easily had 'positive slippage' after 30 minutes in this situation...

It is obvious from the two comments that you either did not read my posts or that you read them but no less fail to understand the situation.

I love ET.

 

[ddaytrader]

Quote from Businessman:

...I think about 5 or 10 pips worth of compensation is all you should get. This reflects the long term loss expectancy to you based on this type of error....

First of all, who builds in an expectancy of loss based upon a broker failing to execute orders?

Second of all, this exact situation happened to me at Interactive Brokers for the first time in 2006. At that time, a sell stop on the AUD.USD did not execute until 30 minutes after the market was offered at the stop price and I was filled 80 pips away from where the market was at the time it was first offered at my stop price. In that case, Interactive Brokers compensated me fully and before the end of that very day.

Of course, Interactive Brokers was not a publically traded company then, and "senior management" may have had a different set of priorities than the current "senior management."

But that was the deal then. Why should I have expected anything different this time? The answer is that I should not have expected anything differnt, hence my surprise that Interactive Brokers has not merely dragged their feet on this, but they have been deafeningly silent.

 

[Businessman]

Quote from ddaytrader:

First of all, who builds in an expectancy of loss based upon a broker failing to execute orders?

That was a number i made up, i think i was being generous by saying 10 pips in this case, it almost 50/50 that the fx market will be either above or below the current level 30 minutes later.

There may be a slight edge and your stop loss is predictive more over than random chance. So some small compensation may be valid.

In the long run you dont lose much with this particular type of error, of course each instance where a loss is made hurts and is remembered for a long time.

 

[OldTrader]

Quote from ddaytrader:

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You may think differently, and that is fine. But it is my money, and the documentation I have is so clear that I am convinced that the only reason it has not been taken care of is that Interactive Brokers is trying to figure out how they can make the case that they are off the hook for this.

Interactive Brokers doesn't have to "figure out how they can make the case that they are off the hook for this". You signed account documents when you opened your account that they would not be responsible for situations of this type.

And, as I read your subsequent comments, I note that you have not actually lost money, you lost a profit opportunity....and it has been my understanding that IB is reluctant to compensate for lost profits.

One other comment: the forex market is a dealer market, not an open outcry, exchange type of market. And therefore, there may be some additional consideration regarding how a stop is handled under those circumstances where it is resting with a dealer, and once activated you're going to have to sell at the bid. If you put your order at a widely recognized technical spot it may well be that bids evaporated at the time your stop was triggered. Just speculating here, I'm not all that familiar with the forex market. Personally I trade the globex currency markets.

OldTrader