Thanks the OP for sharing his/her experience; I avoid illiquid instruments, their slippage can kill your profit.
If you can show me a broker with stricter margins, better risk control, etc. I'll happily consider moving there.
One way to prevent IB from doing this is to have a low-bid on yourself when u are long, this prevents the auto-liquidation. E.g - I am long /mgc (micro gold futures, very illiquid) for a swing position, I have a buy order at 1000 or at a price I don't adding, this would keep IB form closing my position if someone puts in a bid for $1. IB auto-liquidation is idiotic. I am moving my futures account to OEC - low commission.
They have 24-hr phone support. I don't think they use auto-liquidation robot like IB. Clal them to get the details. I do have a work-around for IB idiocy. However, I don't think I should have to to resort to it to prevent an illiquid position from getting liquidated when I am away from the screen. They micros I am using for swing trades. For micro futures, IB should really look at the spot price or the bigger contracts for the actual price, and not have a use auto-liquidation robot acting mad.
Also make sure that your "safety order" is GTC order that is far away enough from the market that is not likely to get executed, but not so far form hte market that it would trigger the auto-liquidation. I don't waht else one can do to prevent IB auto-liquidation idiocy.
@comintel: I had asked them in why they based their calculation on the mid-point of this crazy bid-and-ask spread rather than the extremely liquid Hong Kong forward market, and all I got back was this: "Your concerns regarding our methodology are appreciated. However, it is not feasible to second-guess every piece of market data that is reported, in order to determine if periods of illiquidity are rational based on recent price action. If illiquidity, as reflected in correct market pricing, is real, then the mark prices should and will reflect that, and the resulting risk valuation will be deemed accurate." @hippie: That self-bidding strategy is exactly what I did in the days after that incident to give myself time to slowly get out of my still remaining illiquid futures positions while avoiding IB valuation calculation to go crazy again from another rogue bid. The fact that we find ourselves forced to game the system by placing *buy* orders to protect our long positions should make clients pause who think that IB's price valuaton methodology really protects their assets from other risky clients' actions: Suppose a lunatic like me (from their point of view) buys one illiqid futures contract and places a bid for one more to keep IB's mid-point calculation in check. Then suppose the underlying really does go down and someone else sells into my bid. Oops, I'm long another unwanted futures contract now and thus my excess liquidity is likely to be low. In two minutes, at the next IB valuation time point, a lower bid (since mine is not on the market anymore) will be taken into account, likely resulting in a margin violation and subsequent fire-sale of my two futures contracts (assuming there's nothing else in the portfolio), probably resulting in a negative net asset value.
I agree with them. What are they supposed to do, run a statarb model on your behalf, to try to estimate prices? The core problem is autoliquidation. If you don't like it, trade with a broker who gets you on the phone prior to.
Venturing into illiquid markets is just silly. The ability to rig is just too obvious and in some markets the rules practically invite it.. It could be friends of IB on the other side of your trade, forget that shit...
IB offers cut-rate execution. If you want quality execution -- and <i>speaking with the client before liquidating</i> is a critical component (maybe <i>the</i> most critical component) of quality execution -- then you have to pay a bit more. That's how life works. Quality goods cost more than shoddy goods. You don't go into Per Se or Le Bernardin and complain they don't offer a dollar menu like McDonalds.