Dude, have you read the other thread in the options forum about the guy who had his vertical put spreads auto-liquidated at worse prices than the max-loss for a vertical spread? Options wouldn't have necessarily saved you yesterday. I'm a long-time IB customer and I am very disturbed by the issues with IB's auto-liquidation code that have come to light through yesterday's market action.
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Should you close your IB accounts now?
- Thread starter Ghost of Cutten
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Dude, have you read the other thread in the options forum about the guy who had his vertical put spreads auto-liquidated at worse prices than the max-loss for a vertical spread? Options wouldn't have necessarily saved you yesterday. I'm a long-time IB customer and I am very disturbed by the issues with IB's auto-liquidation code that have come to light through yesterday's market action.
Quote from ids:
We never auto-liquidate instantaneously. You always have 10 minutes to deal with a problem.
Can you point us to where that is stated on the website & legal agreement?
Are there any warnings before this starts? E.g. TWS alert (like when an exchange or stock goes down)?
Given the extraordinary market conditions yesterday, I think it is imperative that IB's CEO or at least senior management publicly clarifies the situation with auto-liquidation, citing the relevant terms in the customer agreement, and posting it clearly on the website on the front page. IB is the only main broker who operates this way, and it is clearly a risk to even the most capitalized and conservative trader. We also have one anecdotal reply here already saying the liquidation starts in less than 10 minutes, and another post saying that an option debit spread was legged out.
IB is normally top dog for risk control. This algo-driven crash has raised serious questions about the stability and risk controls of automated systems. Note that the NYSE never had these crazy quotes, only electronic exchanges. IMO it would be a sound and necessary business decision for IB to not only clarify their auto-liquidation approach, but to instruct customers on how to best handle the unusual risks associated with it, and to review the whole system to make sure it will be robust in a future crash similar to or much bigger/longer-lasting than this one.
IB was good about clarifying credit risk during the 2008 financial crisis. This is one reason many customers stay with the firm. It would seem logical to clarify execution & margin-call risk, now that we have just had a very rapid crash which showed the problems of this kind of setup.
They dont have any rules at all up front.
Even you traded more than 10 years, they will do whatever they like to liquidate it. It is not so hard to find out what the trading risk management the person is using in a few weeks.
Forget about a statement from IB, if they do, they cant do it internally or be busted.
And they have too many big clients or too many to care individually.
Even you traded more than 10 years, they will do whatever they like to liquidate it. It is not so hard to find out what the trading risk management the person is using in a few weeks.
Forget about a statement from IB, if they do, they cant do it internally or be busted.
And they have too many big clients or too many to care individually.
Quote from Ghost of Cutten:
It appears to me that until IB removes its auto-liquidation system, or adjusts it to avoid ALL such dangerous, risk-increasing auto-liquidations at crazy quotes in fast markets, that it cannot be used safely by any trader for anything other than pure cash-only long stock transactions.
Unless your leverage is low and you are diversified or, even better, you keep watching any open positions all the time. There are also stop loss orders for people who are worried about having their account wiped out while they are running to the toilet.
Not to sound one-sided, this morning I was unpleasantly surprised to find out that futures margins were increased without any prior warning.
So the original question boils down to something like...
"If I have leveraged positions, what is IB doing to protect me when things go really goofy?"
Is that about right?
Isn't the correct free-market answer to that question "Absolutely nothing"...?
"If I have leveraged positions, what is IB doing to protect me when things go really goofy?"
Is that about right?
Isn't the correct free-market answer to that question "Absolutely nothing"...?
Let's say you sold 20 ES to hedge your stocks worth $1 mill, so your intraday maintenance margin is 45k. Only some stocks had these weird 0.01 prints but not all. Your hedge should have some open position profit in case of a market crash. I think your scenario is extremely unlikely. Not impossible though.
It might help to set the "liquidate last" flag for what you want to hedge, so your hedge will get liquidated first.
It might help to set the "liquidate last" flag for what you want to hedge, so your hedge will get liquidated first.
In the options forum there is a guy with an IB account who posted the strange case of where his SPY 119/114 put debit spread (long the 119 puts, short the 114 puts) was auto liquidated yesterday at a loss. Apparently he had no margin positions at all, the auto liquidation happened during the Thursday madness because for a while it looked like the 114 put was worth more than the 119 put. This of course should never happen. A auto liquidation program should know that debit vertical spreads can't be worth less than 0, credit vertical spreads can't be worth less than the negative of the difference between the strikes (e.g., short the NDX 1825 put and long the NDX 1800 put can't be worth less than -2500), and long calendar spreads can't be worth less than 0 so long as it's before the expiration of the shorter maturity option. In all cases you could just hold the position until expiration to avoid losing any more than the stated amounts. This holds no matter what fantasy prices appear in the option markets on a crash day like Thursday. If an auto liquidation program doesn't understand these things then IB is too dangerous a platform for option traders.
A more fair answer to this question will be IB will do everything to protect the client's account as long as it is allowed by the client's agreement, "reasonable" (whatever the legal professionals mean by this word) and alined with IB interests. So, IB will liquidate positions if the account is over margin... but doing so in their intrest and this also protects customers with $10,000 account from receiving $20,000 margin call.Quote from Random.Capital:
So the original question boils down to something like...
"If I have leveraged positions, what is IB doing to protect me when things go really goofy?"
Is that about right?
Isn't the correct free-market answer to that question "Absolutely nothing"...?
Quote from ids:
We never auto-liquidate instantaneously. You always have 10 minutes to deal with a problem.
ids, thanks at least for the reply. Question though, what happens in a case like yesterday, where the prices are obviously out of whack, but your system still goes through to liquidate. Does a call to your trading desk earn a manual stay of execution here? Also any comment on the thread where the OP claims his vertical spread was liquidated?
Does your liquidation system have any safechecks ( bid call check etc) to confirm its not liquidating on a misprice?
Thanks
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