Interactive Brokers fails to dismiss ex-client’s complaint over negligent position liquidation

What makes you think I confuse the two? I only stated what was mentioned in the law suit, that within 19 seconds price moved from 7 dollar something to 83. That is highly unlikely to have happened on its own given the market volatility and moves in the underlying that day. Hence the liquidation must have heavily impacted market prices of that option.

By the way, both sides cannot back away as you suggested. The only way market prices behave is when bid and offers widen AROUND fair value. If you quoted me a market that was backed away then I would trade all day with you to capture risk free arbitrage profits. For example if fair value was at 5 and you quoted me a 10-20 market I would sell to you at 10 all day long.



ktm said:
I think you are confusing the actual (fair value) price with the posted bid/ask spread. Both sides back away all the time, not just during flash crashes. During big employment numbers, scheduled Fed announcements, you see both sides lift for seconds at a time. It's very easy to see how an ill timed market order thrown into that could result in an absolutely atrocious fill. People here have experienced it personally.
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GRULSTMRNN said:
What makes you think I confuse the two? I only stated what was mentioned in the law suit, that within 19 seconds price moved from 7 dollar something to 83. That is highly unlikely to have happened on its own given the market volatility and moves in the underlying that day. Hence the liquidation must have heavily impacted market prices of that option.

By the way, both sides cannot back away as you suggested. The only way market prices behave is when bid and offers widen AROUND fair value. If you quoted me a market that was backed away then I would trade all day with you to capture risk free arbitrage profits. For example if fair value was at 5 and you quoted me a 10-20 market I would sell to you at 10 all day long.
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Just because the "price moved from 7 to 83" in 19 seconds doesn't mean the fair value (or market) moved that far. The guy in the lawsuit is pissed not only that he was liquidated, but that the fills were so awful. It's certainly possible that an option TRANSACTION PRICE went from 7 to 83 just 19 seconds apart when you have a fast market. When you drop an option MARKET order into a fast market, you risk all kinds of crazy shit - which is why most people use LIMIT orders.

"Backing away" is never outside fair value as in your example.

If fair value was $5, "backing away" might be .15 and $13. If you were short an option with a fair value of $5 and you were getting auto liquidated - and IB did a "market buy" on your contract and it got filled at $13, you'd be pissed. That's what happened to this guy. Fair value didn't move that much, but I suspect he got filled in that same manner and very far from fair value.
 
You make a boatload of funny assumptions. IB with 100% certainty does not use market orders to liquidate positions. The company would already have been pushed into bankruptcy by a plethora of law suits. Fact is we all don't know the facts and details and can only speculate, but we can at least make reasonable and smart assumptions.

ktm said:
Just because the "price moved from 7 to 83" in 19 seconds doesn't mean the fair value (or market) moved that far. The guy in the lawsuit is pissed not only that he was liquidated, but that the fills were so awful. It's certainly possible that an option TRANSACTION PRICE went from 7 to 83 just 19 seconds apart when you have a fast market. When you drop an option MARKET order into a fast market, you risk all kinds of crazy shit - which is why most people use LIMIT orders.

"Backing away" is never outside fair value as in your example.

If fair value was $5, "backing away" might be .15 and $13. If you were short an option with a fair value of $5 and you were getting auto liquidated - and IB did a "market buy" on your contract and it got filled at $13, you'd be pissed. That's what happened to this guy. Fair value didn't move that much, but I suspect he got filled in that same manner and very far from fair value.
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There have been quite a few threads over the years about IB and liquidation of options positions either needlessly or badly. Maybe this lawsuit will serve to clarify things a little.
 
GRULSTMRNN said:
You make a boatload of funny assumptions. IB with 100% certainty does not use market orders to liquidate positions. The company would already have been pushed into bankruptcy by a plethora of law suits. Fact is we all don't know the facts and details and can only speculate, but we can at least make reasonable and smart assumptions.
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If it isn't market order then it must have been $83 limit order.

I wouldnt want a single YOLO trader causing substantial financial damage which might affect the rest of us customers in IBKR. However it shouldn't mean the auto-liquidation should be scripted in a way that completely neglects customers capital preservation(if possible).
 
qaz said:
If it isn't market order then it must have been $83 limit order.

I wouldnt want a single YOLO trader causing substantial financial damage which might affect the rest of us customers in IBKR. However it shouldn't mean the auto-liquidation should be scripted in a way that completely neglects customers capital preservation(if possible).
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Do you have more than the $500,000 SIPC protected limit at IB? If not, their idiotic policy is providing you absolutely zero, zip, nada in "protection" over what you already have. And if you do have over $500,000 and you're still foolish enough to be with IB you can just buy a Treasury in your name and take a tiny margin haircut to trade with zero counterparty risk to IB. You're just drinking the cool-aid if you think any of IB's anti-customer bullshit is "protecting" you.
 
Sig said:
Do you have more than the $500,000 SIPC protected limit at IB? If not, their idiotic policy is providing you absolutely zero, zip, nada in "protection" over what you already have. And if you do have over $500,000 and you're still foolish enough to be with IB you can just buy a Treasury in your name and take a tiny margin haircut to trade with zero counterparty risk to IB. You're just drinking the cool-aid if you think any of IB's anti-customer bullshit is "protecting" you.
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Do you have a timeline on how quick the SIPC insurance will reimburse me in the unlikely event IB folds? What if the majority of my working capital is parked at IB?
 
qaz said:
Do you have a timeline on how quick the SIPC insurance will reimburse me in the unlikely event IB folds? What if the majority of my working capital is parked at IB?
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If you have a Treasury in your name it's a matter of days, it belongs to you and you can get it back simply by asking even if they've filed for bankruptcy.
If it has to go through SIPC, it all depends on the situation. With a PFGBest type situation it might take a long time, but of course with PFGBest they were fraudulently stealing what were supposed to be segregated funds. At the point that's happening at IB, then "The Algorithm" auto-liquidating punters who Yolo isn't protecting you either. Bottom line is that not a single one of the bullshit things IB does actually "protects" you as their customer. They're all there to allow IB to make more money by minimizing hiring people who actually know something about their industry ('cause you actually have to compensate and treat them well) and replacing them with "The Algorithm" and a bunch of call center morons they clearly pay very little and don't treat much better judging by the quality and attitude of folks I've spoken to there.
 
Sig said:
If you have a Treasury in your name it's a matter of days, it belongs to you and you can get it back simply by asking even if they've filed for bankruptcy.
If it has to go through SIPC, it all depends on the situation. With a PFGBest type situation it might take a long time, but of course with PFGBest they were fraudulently stealing what were supposed to be segregated funds. At the point that's happening at IB, then "The Algorithm" auto-liquidating punters who Yolo isn't protecting you either. Bottom line is that not a single one of the bullshit things IB does actually "protects" you as their customer. They're all there to allow IB to make more money by minimizing hiring people who actually know something about their industry ('cause you actually have to compensate and treat them well) and replacing them with "The Algorithm" and a bunch of call center morons they clearly pay very little and don't treat much better judging by the quality and attitude of folks I've spoken to there.
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Yeah IB is run by tech guys, probably why their customer service is below par.

Still the company is what it is and there are no close competitors that provide good execution and price improvement. With that said I would prefer them to quickly cut out those YOLO traders before they cause damage to IB and hence potentially affecting the customers.
 
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