Hi. Say, I bought future contracts worth $10,000. Then I covered all future contracts afterward. What if the purchase transaction get busted? How does it affect me? What should I do to remedy the situation? If I do not have insufficient funds in my account and have margin calls, I may incur a loss. Normally when I will get notified after the transactions are busted? If the broker tells me too late, can I ask for compensation? Thanks!
First, be suspicious of a far away from the market execution in your favor. Before actually entering the trade, consider the bust possiblity. Seems like it's a very rare that a losing trade that gets busted, so yeah, one usually takes a nice loss on a bust. Not always. There were a few times when somebody big was playing nasty games and the futures would soar or tank between about 4pm and 4:15 Eastern (back before the hours change). CME would say any trades above x (in the case of a soar) or below y (in the case of a tank) were hereby busted. That would make for a lot of phone calls for brokers. You would get faster information right here in a case like that. Sure. Ask them for a million dollars as well. Yer welcome.
TGregg, Thanks for your response. What I mean is in my case, I bought future contracts worth $10,000. Then I covered all future contracts afterward. If the trade get busted on the buy orders, that means I have opened short positions (instead of covering it), right? Next, if after I have covered my positions (sell), then the price keeps going up and up. If I turn out to be on a short position (due to the busted buy trade), I may not have sufficient fund to keep the margin and so has a margin call. I incur a loss then.
Yes you would in the example you give. You should look up the busting parameters of the contract you are trading to make sure this doesn't actually happen to you. If you are given a gift fill outside the bustable window, call your broker to see if it is for real before you close out the position. Either that or just wait a few hours before closing just to make sure the trade is legit.
exactly-know what the "no bust ranges" are. with cme(globex) they adjust the price instead of busting it outright.unless its a malfunction then they bust it. ecbot,with gold/silver they also adjust it.i have it had happen a number of times. in the rulebook i read also about arbitration against the other person who caused the error if you end up getting scrrewed over cause of their mistake.
does the ecbot really adjusts trades in their metals complex outside of the no bust ranges ? I did not know that ... if true .. thats a good thing for the small spec. when "fat finger" strikes ...
Is it a bit unfair? On one hand, it's good to see the "fat finger" guys will not be killed off by their big mistakes. But on the other, it turns out to be us to suffer from the mistakes they make. Next time, if I have an executed but bustable trade, I just don't know what to do. On one hand, I may simply ignore this trade since it will be busted soon. On the other, it may not get busted as long as another party doesn't request for it. Trouble!
Like others said - know the rules for each product and act accordingly. That means you have to go to the exchange website and study. Also, they have a habit of changing the rules with very little notice, so look frequently. I remember the day of one of the big silver crashes recently when they (NYMEX) doubled the daily trading range limits effective less than a day later!
It is unfair if you are being busted on, fair if you are doing the busting. I am more sympathetic to the person being busted on, but other people have different views on this topic. If you think that your trade could be bustable, just look at what is happening in correlated markets. For example, I remember when fat finger man sold off the YM contract which also caused DIA to fall due to arbitrage. However, SPY and QQQQ weren't moving at all. In that case you have to think those trades will be busted eventually. Or if you get a great fill and in a few seconds you have a tremendous profit, most likely your trade will be busted. That usually means that people realize your print was a mistake and try to capitalize if other people make the same mistake. Then again, if you get into a "great fill" position and it keeps on going against you, then you might be screwed (market dislocation). Good luck!