But what happens to the little guy that was short and got margin liquidated at 920+, if those trades are not broken?
Sorry to quote myself, but upon second thought: IF you had the mental capacity and computer skills to implement such a mechanism, you wouldn't be running an exchange, you would be a profitable arbitrageur. Those who can't make a living trading obviously drop out into running exchanges.
Same thing that is going to happen to those shorts that covered at 859 - they are gonna lose. If you happened to cover at 861, you will be busted and be fine. If you covered earlier than 860, you are gonna get screwed.
Actually, what happens to that guy now that the trades have been broken? Will his broker just give him a courtesy-unliquidation? Something tells me not.
True. And I agree. This is just one of those messes that is not cleaned up easily. I do think you have to punish whoever did this by making them eat some of this. Not saying this is a perfect solution.
SPH3 peaked at 85400 @3:11. Seems to me that should be the break trade point. Why give a windfall of 6 pts. to the arbitrage guys?
I WAS short 2 eminis......and YES I did have a heart-attack when the futures SHOT up!!!! Luckily I didnt panic because I didnt see the big S&P's following....did anyone else notice that?
That's true if ESH3 was his only position, but if he had other contracts or stocks in his account, they might have been liquidated because of the huge (albeit temporary) drop in account equity. Let's say I have an IB universal account with 20 different long stock positions and short ESH3 as a hedge. The spike would have caused the ESH3 to be liquidated at a loss of say $4000 per contract, way more than maintenance margin. Now my equity is suddenly negative or way too low to meet the stock margin requirement. The broker will sell all my stocks (after hours!) and leave me with an additional huge loss there.