Broker errors, Client responsibilities

Discussion in 'Retail Brokers' started by BlueHorseshoe, Sep 8, 2003.

  1. I'll describe a situation I ran into today and then ask the questions:

    Early last week I called my full-service futures broker and placed a long position trade ... the trade was confirmed on the phone. At the time, due to some changes to my account and the snail pace of admin at my broker, I wasn't getting statements for about 1 week. On Thursday I sold an offsetting position and went into the weekend believing I was flat in that market. I finally got that week's statements on Friday. On Sunday I reviewed the statements and discovered that the original long trade was never credited to my account and I was net short. Well, I was fairly confident my broker had made the error but I had been busy that week and in fact could have gotten confused myself. Nevertheless, I was happy w/ the error because it was a few pips in my favor.

    Anyway, on Monday a.m. I still wanted to be long this market so I began by buying 1 contract to bring my position to flat (with the intent of scaling in as time passed.) While on the phone with the clerk I mentioned that I thought a trade had been overlooked last week and she said she would look into it.

    She called back a short time later and said they had inadvertently placed the trade from last week in another account. She asked to scratch the trade I made that morning (market hadn't moved) at free round-turn commission and place the original trade in my account. I agreed, although the net-net was I became worse off by a few pips.

    It strikes me that if I hadn't said anything over the phone my broker might never have identified the original trade as mine. Or perhaps they only would have identified it as mine once it had shown a significant loss?? The thought is kind of scary ...


    I know the right answer is to review my statements religiously and be responsible for my trades. Nevertheless, in the situation above, when a trade has not been credited to an account for several days and the client hasn't spoken up, typically what sort of leeway does a broker have to close the position, hold it in an error trade account, or credit it to the trader's account? Who is actually freeriding in such a scenario?? The client or the broker? Even now I don't understand how my broker could have been holding the position for a week without realizing the error. I would have thought that if the broker couldn't identify the account in which to deposit the trade, that the broker would close out the position in a relatively short timeframe.

    So, in such a scenario what are the rights and responsibilities of broker and trader? (Yes, I know this is probably all spelled out clearly in my account agreement, but I'd rather read it here, perhaps peppered with some first-hand experience, than in the legalese of a contract.)
  2. Blue;

    Brokers are like banks, deep pockets,;
    errors may be caught in a month or less.

    Whether phone or computer trade, asap ,[as soon as posssibe];
    i write [blue or black INK] in notebook-fill price,price$,,day, exact time & mental stop , market or limit order...!

    ''Regard discretion''- Soloman,trader king
  3. Blue;

    Another reason i like blue or black INK & paper charts;
    Power surge KNOCKED off my first reply OFF!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
  4. entern


    BlueHorseshoe, can u tell us/me , which broker it was??

  5. Who it was is kind of irrelevant. This could have happened anywhere.

    I guess my concern would be if I got into a long-term position and then went on an extended vacation without confirming my position in my brokerage statement. Regulations or stated practice aside, what is to stop the broker from holding the position and then allocating to me or keeping in their error account based on whether it is profitable or not?

    Sounds like some real incentive to keep on top of those daily statements ...

    Is there some kind of statute of limitations after which if the position hasn't been posted to your account the broker becomes obligated to keep it?
  6. Sorry, but it's your fault for not knowing exactly what positions you have. You never place a 2nd trade without having the broker check for your original trade. You knew you were filled the 1st time, so you don't place another trade unless you have already had the brokerage firm research it.

    Brokerage firms can make mistakes, it shouldn't happen often, but it does happen sometimes (especially when you're doing phone trades which are generally entered manually). Your best and only defense is knowing exactly what positions you have at any given time and immediately telling the firm if you think soemathing is wrong.
  7. jrkob


    I think that making more trade(s) suspecting that your broker had made at least an error was really a big mistake on your part.

    Should the market have moved substantially, and against the "unwated" position of your broker, they might have been less understanding. Even though the initial mistake was theirs, you didn't seek to clarify fully your situation, and theirs, before making more trades: this is irresponsible attitude, and you gave them more meat for them to argue that the mistake is mutual.

    Take this as a lesson, you might be less lucky next time.

    By the way, waiting one week to get your orders confirmed is completely unacceptable to me. Isn't there a way for you to check online your position in more or less real time ?

    Myself, knowing my real position with one week delay would not be acceptable.
  8. jrkob


    Something else I think of: is there a way for you to always talk to the same dealer ? Myself, I only talk to the same dealer, such as he pretty much knows what my positions are ("pretty much").

    This recently proved to be useful: I wanted to sell a stock which I and he knew I had purchased the week before. For some reasons the trade had been, like you, incorrectly booked. But because he did remember it, and the mutual trust we have in each other, the mess was swiftly resolved and I could square my position much quicker than if I had spoken to another dealer.

    This obviously depend on how busy you are with your broker. My brokerage company is a small one, and the market I usually trade are less active than US markets, so it helps I guess. Putting things into perspective...

    Also, I found that getting together with him after office hours for a few beers helped developping trust a great deal. We're all human...
  9. Sounds like my situation: usually less active markets, small brokerage office (part of large global firm.) I'll look into speaking w/ one person ... that might help.
  10. jrkob


    Invite him for a beer, so that he sees your face.

    If he remembers your face, he will remember your trades better.

    (a glass of milk might also do it !).
    #10     Sep 8, 2003