Intense story. What happened the next day? Did the stock rebound?? Would have he been bailed out?
What do prop firms do when you blow up past your account balance?
- Thread starter clearinghouse
- Start date
Intense story. What happened the next day? Did the stock rebound?? Would have he been bailed out?
I don't recall the stock in question, but it was a stock that had very thin (if at all) trading after hours. I'm sure if he had been able to hold the stock overnight his losses would surely be just a fraction from what they made him lose by auto liquidating into the thin market. (Then he tried to persuade them to give him some more time to find a friend with overnight buying power -from another firm I suppose- to offset his position and then resettle at same price premarket the next day. However as I recall it they had minimal interest in his arguement , and approx at 4:15pm the system began to autoliquidate him and he went ballistic).
I know I had learned my lesson once when I held UNH past trading hours and had to liquidate 20-30 cents away from the close. That unfortunate day ended up costing me (think it was $500 or so), but also got me to start searching for props that would be open to the idea of some overnight holdings.
I think it is very rare for a stock to open more than 10% from the previous day's close. Not saying it never happens, but for it to happen on the day and to the one stock you hold overnight once in a blue moon, the odds are extremely low.
nowadays, that is not an issue, everything is done by computers, when your account drops below margin, it is auto closed out, sometimes by just a few dollars to keep you even, so you end up with odd positions, like 89 shares.
In the old days, yes, when you got a margin call, the owner would decide if he wanted to cover. In many cases he would since it was his research that told you you should go long.
It could get quite ugly. What started out as a simple commodity account, could be become a lifelong debt.
It's much better for the customer now
and that is why no brokers have yachts anymore
This isn't true. They don't autoclose out, they often go into just liquidate-only modes, but if you have watched moves over the past few years, sometimes the market can move so hard you can't get out or the broker's order server goes unresponsive or your market data can choke up.
It is possible to lose beyond the preset risk limits. Trust me. I have a really, really tight risk limit of around -$150 (before going to liquidate-only) because in my style of trading, I trade massive amounts of 100 lots on 100+ symbols or so, and yet I still have days where my losses are close to 1k or more because of freak news events where I just can't find an exit soon enough, or get caught in a broker slow down and haven't flipped over into using market orders to get out.
Risk management helps me stay alive, but I still have technical glitches and a number of random problems show up from time to time and do cost me a lot of money.
I agree that while it is in the operating agreement, it ultimately would be hard to collect as I would imagine that most management would likely write off the loss instead of going after the trader in court and get a judgement and garnish wages, etc. My guess is that management will huff and puff and make threats in the hope the trader pays it back but in the end they likely walk away and take the loss. I guess it's a question of cost vs. recovery.
They WILL report you to the credit agencies. It WILL affect your credit and the next time you sit down with another prop firm and tell them what a great trader you are, they will be able to look up your credit, as all prop firms do now, and see you stiffed your last firm with a loss. It's analogous to getting blackballed from the industry.
You should be careful regardless, it's your money. I'm always amazed at lack of regard that most traders have towards their money or others. Their emotions get the best of them and they throw any once of responsibility they once had out the window.
I can tell you, no prop firm, no hedge fund, no opm, would tolerate the kind of swings I go through on a regular basis. But I don't have anybody to answer to except myself. And sometimes, my self is a lot tougher critic than some investor in a hedge fund. Nothing worse than hearing the OPM guy say, "Don't worry about it. It could have happened to anybody."