I had read warnings on this board about IB's auto-liquidation policy before I opened and account with them, but hadn't taken them too seriously as I keep very conservative margins. Then the following happened:
In order to benefit from the appreciation of the Chinese yuan, I opened RMB futures long positions on the CME Globex futures exchange during the course of Spring 2010, which I kept open for months. The yuan appreciated and my position values kept increasing. The Globex RMB market is very illiquid but open for trading 23 hours per day, so at certain times during the day it could happen that there was no bid and/or ask at all. One day when this happened, someone suddenly came in with a bid of 0.14000 USD for the September 2010 contract (at that time, the underlying exchange rate was about 0.14750). Now IB recomputes your positions values 24-7, in near real time, merely based on bid and ask spreads. There was an ask of 0.14787 on the market when the 0.14000 bid came in; therefore IB re-evaluated the position as 0.143935 (based on the mid-price). Despite of me having kept a margin of more than two times of what I was required, this crazy evaluation immediately brought me into margin violation. Within minutes IB started to auto-liquidate my positions at fire-sale prices. Within an hour, the market had become more liquid again, with realistic bids, and my margin was fine again. That day the yuan closed higher, and so did all the yuan futures, but I had lost thousands of dollars due to IB's auto-liquidation of my positions based on a single rogue bid. All this within one hour while I was asleep. I was actually lucky that things came back to normal so quickly, otherwise my whole portfolio might have been wiped out. Needless to say that I never received any compensation and just wasted my time dealing with their customer service in the aftermath of all this.
IB is the only broker that I'm aware of that autoliquidates within minutes (most brokers give you at least a day, and more importantly, calulate your margin based on closing prices). Most people know that, but what they don't know is that IB recomputes your portfolio value purely by taking the mid-point of bid and asks. If you trade illiquid futures, IB is a ticking bomb! There is simply no way one could be expected to provide for an excess liquidity that reflects the kind of intraday price movements reflected by their method of calculation, which is completely prone to manipulation by low bids.
In order to benefit from the appreciation of the Chinese yuan, I opened RMB futures long positions on the CME Globex futures exchange during the course of Spring 2010, which I kept open for months. The yuan appreciated and my position values kept increasing. The Globex RMB market is very illiquid but open for trading 23 hours per day, so at certain times during the day it could happen that there was no bid and/or ask at all. One day when this happened, someone suddenly came in with a bid of 0.14000 USD for the September 2010 contract (at that time, the underlying exchange rate was about 0.14750). Now IB recomputes your positions values 24-7, in near real time, merely based on bid and ask spreads. There was an ask of 0.14787 on the market when the 0.14000 bid came in; therefore IB re-evaluated the position as 0.143935 (based on the mid-price). Despite of me having kept a margin of more than two times of what I was required, this crazy evaluation immediately brought me into margin violation. Within minutes IB started to auto-liquidate my positions at fire-sale prices. Within an hour, the market had become more liquid again, with realistic bids, and my margin was fine again. That day the yuan closed higher, and so did all the yuan futures, but I had lost thousands of dollars due to IB's auto-liquidation of my positions based on a single rogue bid. All this within one hour while I was asleep. I was actually lucky that things came back to normal so quickly, otherwise my whole portfolio might have been wiped out. Needless to say that I never received any compensation and just wasted my time dealing with their customer service in the aftermath of all this.
IB is the only broker that I'm aware of that autoliquidates within minutes (most brokers give you at least a day, and more importantly, calulate your margin based on closing prices). Most people know that, but what they don't know is that IB recomputes your portfolio value purely by taking the mid-point of bid and asks. If you trade illiquid futures, IB is a ticking bomb! There is simply no way one could be expected to provide for an excess liquidity that reflects the kind of intraday price movements reflected by their method of calculation, which is completely prone to manipulation by low bids.