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Order busting
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I had a busted futures trade once. The price moved very rapidly down to my buy limit price and reversed within a few seconds when other buyers came in. I don't know exactly what caused it but expect some automated program went a little crazy. The average trader probably could not get something like this reversed but the big players can. My broker called me about 30 minutes after the trade with the bad news and then reversed it in their system. Took about 2 weeks though to get my commission refunded.
When it's really devastating is when you learn about the busted trade after you've already executed an offsetting position. That one stays on the books!
When it's really devastating is when you learn about the busted trade after you've already executed an offsetting position. That one stays on the books!
IB sent an email this time. They used to call. 
January 12, 2005
Trade Bust Notification
Dear IB Trader,
There is a trade in your account that, upon review, has been deemed erroneous and will be removed from the account.
The trade is as follows:
S DHB 15.29
* A ruling has been made on this execution and it has been determined that it was clearly erroneous.
* The market at the time of the execution was (14.35).
**NOTE**
The original order entered, which resulted in this execution, has been cancelled. You may resubmit the order at your discretion.
GENERAL ERROR TRADE INFORMATION
In order to promote a fair and orderly market in which to trade, exchanges often make decisions to allow or disallow trades based on a number of factors. The exchanges each have their own guidelines that are used in evaluating executions, some of which are made public and some are not. Currently the exchanges operate as "Self Regulatory Organizations" or SRO's, which gives them the authority to make such decisions. Generally speaking, decisions are based on the following types of factors:
* Pre-market or after-market hours.
* Excessive delay in request to review transaction(s)
* Suspicious trading activity
* "Locked" or "Crossed" market
* News released for security
* Relative volatility for security
* Relative volume for the security
* Trading in security was recently halted / resumed.
* Security is an IPO
* Stock split or reorganization
* Generally volatile market conditions
If you have any questions regarding this bust feel free to contact us.
Regards,
Interactive Brokers Customer Service
January 12, 2005
Trade Bust Notification
Dear IB Trader,
There is a trade in your account that, upon review, has been deemed erroneous and will be removed from the account.
The trade is as follows:
S DHB 15.29
* A ruling has been made on this execution and it has been determined that it was clearly erroneous.
* The market at the time of the execution was (14.35).
**NOTE**
The original order entered, which resulted in this execution, has been cancelled. You may resubmit the order at your discretion.
GENERAL ERROR TRADE INFORMATION
In order to promote a fair and orderly market in which to trade, exchanges often make decisions to allow or disallow trades based on a number of factors. The exchanges each have their own guidelines that are used in evaluating executions, some of which are made public and some are not. Currently the exchanges operate as "Self Regulatory Organizations" or SRO's, which gives them the authority to make such decisions. Generally speaking, decisions are based on the following types of factors:
* Pre-market or after-market hours.
* Excessive delay in request to review transaction(s)
* Suspicious trading activity
* "Locked" or "Crossed" market
* News released for security
* Relative volatility for security
* Relative volume for the security
* Trading in security was recently halted / resumed.
* Security is an IPO
* Stock split or reorganization
* Generally volatile market conditions
If you have any questions regarding this bust feel free to contact us.
Regards,
Interactive Brokers Customer Service
This wasn't very much, but it still sux. It happened in the afternoon and I had a limit order in all day, so they can't say it was pre/post market nonsense.
When I make a screwed up trade - wrong limit, sell instead of buy, accidently click, or some other f*up - I expect to eat the loss (or rarely, keep the gain).
But the "exchange" gets all of the do-overs they want? Some bozo typed in the wrong number and bought my stock. Seems like it ought to stand..
Oh well, just another gotcha for the little guy!
When I make a screwed up trade - wrong limit, sell instead of buy, accidently click, or some other f*up - I expect to eat the loss (or rarely, keep the gain).
But the "exchange" gets all of the do-overs they want? Some bozo typed in the wrong number and bought my stock. Seems like it ought to stand..
Oh well, just another gotcha for the little guy!
One day, some guy makes a mistake and enters an aftermarket order $10 higher than the real price on a $30 stock. I short it. Gets busted within 15 minutes. No big deal, I expected it. On the same day, I erroneously entered an aftermarket order approximately $10 higher than the real price on a $30 stock. Someone takes my bid. Within a minute, I call to have it busted. Answer comes back: no bust. True story.
Other people will probably try to respond and claim that the busting process is fair, but I am 100% sure that it is rigged given the right circumstances. That is the only conclusion I can come to given what I have experienced over the years. However, I must say that in the last few years it seems to have become slightly more fair. Not perfectly fair, but more fair.
Did your broker call the exchange that it traded on? I know that on Island (before the merger with Instinet) the rule was always if a trade is 20% away from the 'prevailing market' then it's a bust.
Was this a stock that had fresh news, that was already trading well over $30 by the time your order hit? That's the only explanation that would make any sense.
I remember a long time ago a stock that was trading at about 1.40 (with fresh news) and an Instinet trader bids 2.00 with size, and I sold to him. It was pretty reasonable to bid that high, because it was pretty big news. But the exchange busted all the trades at 2.00 because it was over 20% higher than 1.40.
Each market centre has different rules regarding error trades and busting. If you are trading on a particular exchange frequently it maybe worth finding out the rules - they are usually hidden away in a small corner of their website. You also need to be careful when trying to bust a trade - some exchanges will charge for busting trades - so you may find this charge to be higher than the amount you saved from the bust. Even worse, there are exchanges that charge you for simply requesting a bust even if the trade is not eventually busted - so you get stuck with your fill and a "charge".
We actually have an article regarding exchange error policies on our markets website www.ibmarkets.com - see Trading Issues column.