Question for IB: Potential liability when trading futures

Discussion in 'Index Futures' started by Shigetsu, Aug 10, 2008.

  1. Shigetsu


    I've been trading ETFs for several years and would like to trade the ES, but have a question about liability.

    I know that the entire equity in my account could be lost if there is an extreme market move, or trading is interrupted for any reason (systems down, terrorist attack, etc).

    But are there clear rules regarding what the liability could be if the losses exceeds the value of your account? Let's say, just as an example, that I am trading 10 contracts with equity of $100K. If the market were to drop by 25%, like in 1987, and it was impossible for IB to liquidate my account in a timely manner because of system failure , then I am looking at a loss in excess of $150K.

    Can IB then hold me responsible for the additional $50K?
  2. Yes
  3. m22au


  4. known as ' overloss ' Daily Limit is 5% for es mini
    daytrading margin usually $500 per contract = 10 points

    overloss can't occur with retail fx trading as brokers limit losses to
    the value of the account margin via their software, and i wonder
    why the same isn't done by the globex markets brokers
  5. It's not done because its an honest market not a fix.
  6. Read the ES contract specification:

    "Successive 10%, 20%, and 30% price limits based on the average daily close of the cash index in the last month of the preceding quarter. Price limits are effective only for limit moves below the previous day's close."

    Globex futures brokers cannot prevent huge losses when a gap or air pocket occurs.
  7. Shigetsu


    Thanks, all.

    I know we have to read and agree to all the standard disclosures, but would be great if someone from IB also replied, with specific examples.
  8. m22au


    I'm really not sure what additional information you are looking for. Leverage is a two-edged sword. If you enjoy the gains of leverage when you place profitable trades, it follows that you also have the risks associated with using leverage on losing trades. This includes losing more than the amount of equity in your account.

  9. Yiasou


    I use TradeStation with automated trading of strategy that I have written. They all contain "at market stops" that are automatically placed on the TS Order Execution Network. It is not fool-proof but better than being in a naked long or short position. All trading systems need to be monitored at all times - even automated. (P.S. TS has had problems staying connected to Globex recently. Not perfect.)
  10. Surdo


    Do yourself a favor and get a second broker as back up, or you eventually will be caught with no contact to TS.
    #10     Aug 14, 2008