Hello dear friends, I live in Germany and use the Broker Captrader, which uses the Trading Platform from IBKR. A few days ago a painful situation happened. Please find below what I wrote to IBKR after having some calls with Captrader and IBKR. Would love to hear your thoughts on that matter. I would be eternally thankful for advice. The main question I have is: can the broker liquidate at any time, even 4 hours after announcing it? What I wrote to the broker: Situation: 1.I sold, not so smartly, 5 GameStop Call options. on the 26th of January. During after-trading hours, minutes after the market closed, the GME stock went through the roof. 2.8.40am EST time – Call from IBKR with the request to either transfer more funds or face liquidation. According to the person on the phone (Julian A), liquidation will be done on the 10th minute after the market opens 9.30am. Hence expected liquidation at exactly 9.40am. 3.Between 9.30am-9.44am EST – even though market was open, IBKR experienced technical problems and it was not possible to place orders on GameStop. I understand, that during this time, the liquidation was not possible. The technical problems in order execution for certain stocks, such as GME, was also confirmed to me by 2 different people (1 working in Captrader and 1 working in IBKR). 4.9:44am EST – possible earlier liquidation at 65USD (see PDF). Obviously, I understand that 65USD are not guaranteed in the automatic market price execution. 5.1:49pm EST – forced liquidation of 5 GME options by IBKR at 218.25-218.60USD (4hours after the announced liquidation!) causing extremely high losses and an even higher negative net liquidation value. Negative liquidation value was negative all 4 hours and I obviously could not execute the trade to liquidate the position manually, since I had negative net liquidation value. The only option in such a scenario is to wait for the IBKR automated liquidation mechanism to liquidate the position. Problem: 1.What is important to understand, is that it took ~4 hours to close a small position of 5 options in one of the most traded stocks that day. So, the liquidation happened with such a delay of 4 hours not because it is a highly illiquid stock, and I had a multimillion USD position in it. 2.The person, who was working on my ticket before, send me the link to a text, where this was written: “in the case of a margin violation/deficit, the account in deficit is immediately subject to liquidation.” Immediately does not mean 4 hours later, 1 week later, 1 month later. What would have happened if IBKR would have liquidated my position 3 days later at a price 10x of what it was. The net liquidation value would have been -500k? Obviously, some mechanisms did not work on that day, as they should have. And as I said before, this was confirmed by 2 different people. I am aware, that there could be certain issues, which could delay the problem by some minutes, but not by 4 hours! 3.Even until today, 1 week after the incident, I was still not fully liquidated. I still have 1 position in ISPA and 1 in ISFA. These are very tiny positions, but how comes this still has not been liquidated until now, even though my net liquidation value is negative? Also, the position has not been brought into base currency of Euro, hence if USD/EUR (in the unlikely scenario) strengthens 100% tomorrow, I will lose double the money. I cannot liquidate / change currencies myself, as I am negative net liquidation value. Even so far, I have lost more than 600EUR through FX due to that! 4.One Captrader employee also told me today, that it is possible that the liquidating positions have been ranked by priority and liquidated case by case. I am not sure, if he is right or not, but that would also be totally unacceptable if wealthier clients would receive prior liquidation to better prices than low priority clients. Solution: 1.I have added a PDF document, which includes a small calculation, bringing the net liquidation value from €-52k to + €11k. This liquidation value is obviously, one possibility, as I have taken an option price of 65USD, which was the lowest traded price in the 1st 1 minute candle at 9.44EST. 2.Obviously, I understand, that now in the hindsight, it is not possible to say which prices would have been filled, were the forced liquidation to happen at the correct time. I recall, in the first few minutes, there were prices, which would have been filled at a much lower price, leading to net liquidation values of -15,000, - 20,000. These are still huge amounts of money for me and remarkably worse than the +11,000 position, but still way better than -52,000. Almost any price, would lead to a better net liquidation value. I am not trying to take away the responsibility for that trade, but obviously the liquidation blame is not on my side. 3.If the issue will not be solved constructively, I will fill in a formal complaint form with BaFin about such totally unacceptable liquidation practices. _________ Hello, sorry for the double-email. I just talked with a lawyer today, specialized on damages caused by investments. Could you please answer the following questions as precise and transparent as possible? Of course, on top of answering the questions from my ticket. It is my legal right to inquire information and receive answers to these questions. Questions: 1. Why / what were the reasons the liquidation of options took 4 hours to complete on the 27th? 2. Why were the options not liquidated 10 minutes after the market opened, as I was told during the call? 3. Were there any technical problems? If so, which problems? A few people from IBKR and Captrader told me on the phone that there were technical problems, but it would be good to be precise in this case. 4. If there were technical problems, which led to manual liquidation by your employees, was there a certain preference to liquidate certain customers first? If so, what was the preference rule? 5. Are there any legal disclaimers that I signed, which protect you from my damage claims? 6. Do I have the right to claim for damages in this situation? If yes / no, please explain why? 7. Are there any allegation of negligence from your side to mine? It means, could I have done something differently on the 27th to reduce your claim? (Reminder: net liquidation value was negative, and I could not close positions. Hence only option was to be auto liquidated through the algorithm. 8. What is the reason, some positions have still not been liquidated and the currency has not been brought back to Euro?
U sold naked call Options on a stock that was doubling everyday ? you know what they say. A fool and his money.....
Thank you for the answer. The problem was not the trade, which was not smart indeed. The question is, why it was not liquidated from their side for many hours, even after being told so on the phone and fulfilling rules of forced liquidation. Can they take a year to liquidate you position?
As your net liquidation value ist negative, you can not make any trades / cover. You can just wait to be autoliquidated. If I had the chance to cover, I would obviously cover. However, autoliquidation was not done 10 minutes after the market opened, which the broker told me on the phone, but 4 hours later, after the stock had time to move up insanely.
Not much to say other than you have my sympathy. The market rules etc. you take for granted will not be there for you when you need them most.
Thank you. If the liquidation mechanism would have worked properly, this chaos would not even have happened.
I am sorry about the situation and I understand your frustration about IBKR. It sounds like IBKR betrayed your expectation, which caused a sizable loss. But unfortunately, it is not like you can do much, as they can simply blame things on technical issues and extraordinary volatility. Hence, there isn't much you can do, besides hating IBKR.
Thank you. Let's see how it develops. I am not sure, the "technical issues" excuse would be a good excuse, since they could blame technical issues on literally all complaints they receive. Some positions have still not been liquidated. I mean there is some degree of acceptance to technical issues.
Your story is painful. But before you spend money on attorney fees, carefully and objectively read your broker agreements. Unfortunately, given all the issues of that particular time period, and the instruments you were trading, the broker probably isn't going to be held responsible. At least you've gained 2 powerful lessons: (1) Short options can and do kill, and (2) You can't completely rely on any technology platform to pull your ass out of the fire. And whenever trading any derivative instruments, it really pays to take the time to consider worst-case-scenarios before entering the trade. What's the worst that might happen, and specifically how are you going to handle it?