Wrongful Liquidation Scam

Discussion in 'Retail Brokers' started by pdcaz, Feb 26, 2011.

  1. pdcaz


    It seems that IB and many other brokers have a scheme to profit through wrongful liquidation for positions that have no actual margin deficit. They apparently take over the positions for their own account. If anyone has experienced such liquidation sales or know about other documented occurences, please post or contact me.
  2. If something like that happened to you can you provide details?
  3. Its actually not a scam, but an additional risk overlay that the IB's and FCM's use to liquidate a traders position if they hit a daily loss limit. For intance, i have an account with Transact through IB Zaner. My day trading margin is low, and I can trade multiple contracts in different markets...but Transact will detect if my account is down by a % threshold and auto liquidate.

    This cuts both ways. I actually had an instance where my cat climbed onto my desk and layed on top of my mouse. The mouse curser was on top of the DOM and fired off an irregular pattern of trades....over and over and over. My account was down 20% in about 30 minutes and Transact detected the unusual activity closed me up.
  4. pdcaz


    If the broker wishes to take over a certain position, he may raise margin for the client's account so that liquidation occurs on a pre-calculated price level like a dip, etc. The broker can liquidate for market price, i.e. he will get the position for large discount.

    In the same manner, account balance can be computed too low, so that liquidation sales are triggered.
  5. traders


    Yes, this is also what happened during the 2008 crash. E.g. they raised margin for closed end funds, and small ETFs. However this was announced some days before or executed in several steps (e.g. they raised margin from 25% to 100% (so no margin) for illiquid etfs/cefs but they did this is in 3 daily steps of 25%.

    This look like fraud to me, but when you maintain a solid margin cushion (instead of being overstretched) they need to make very strange computations to get into liquididation.

    So to be short: When trading at IB, ensure you have enough margin. Don't overstretch.
  6. Citta


    IB automatic liquidations :
    I think it may be still worse than what you think

    Presently I am in litigation with IB.
    But it is a very difficult fight.

    Look at the matter...
    such events appears frequently in this order, within a few minutes:
    1) the quote of an option line - or of several lines
    (belonging to the portfolio) is - or are - no longer displayed
    Reminder : as you know, IB computes every 3 minutes the values of the "Account window"
    2) Among the values of the "Account window",
    the "net liquidation value" drops sevelery (-36%, -47% within a few minutes)...
    and during the same time, the values of the most sensitive options of the portfolio varies around 2%, and the underlying 0.2%:
    in other terms, the moment is quiet, including for those options
    on this underlying.
    3) An injustifiable automatic liquidation is provoked.

    I initiated a complaint first with IB, then with the Financial Ombudsman Service, but the Ombudsman does not like numbers and details, he just keep a general attitude alleging IB is so called "protected" by "customer agreement".

    So my advice is that all IB's users should first pay attention of course, and then look for such events as
    a sudden drop (within a few minutes) in "net liquidation value"
    of one of the part of the account (securities or commodities);
    and to this sudden drop may succeed...
    # either a sudden rise and back to normal value
    # or... an injustifiable automatic liquidation triggered by wrong evaluations by IB.

    It is impossible to know exactly what is happening in IB's computers,
    but all is working as if
    as soon as the quote of an option or several options (of the portfolio) is not available,
    then IB computes the values of "Account windows" without the lines of the portfolio that are not displayed (!),
    what provokes a big error in net_liquidation_value,
    because certain option(s) line(s) of the portfolio are merely not taken in account any longer.
    This can lead to several kinds of consequences :
    - abnormal but temporary ability to trade (when the net liquidation value is highly overestimated)
    - impossibility to trade (when the net liquidation value is seriously underestimated)
    - automatic liquidation (when the net liquidation value is highly underestimated)

    To show evidence of this, I made screen copies.
    But the Ombudsman did not even look at them.
    His answer is just a vague, vague letter, without refering to any precise fact, and even refusing to examine precise facts.

    My advice for IB's users is :
    1) be very careful
    2) look at abnormal changes of "net liquidation value"
    3) try to find means to put abnormal functioning in light
    by screen copies or any way you can imagine
    4) let us stay in touch to see further developpments.

    We should meet regularly in a special place about this topic.
    A trial is expensive is UK
    and I don't think there are class action like in USA.
    But if we get many witnesses and many evidences of abnormal ruling of net liquidation value (and more generally "account window") by IB, we should be able to succeed.

    What do you think about it ?

    I was looking for a precision:
    an IB account that enables to trade options and futures
    is divided in two parts : "securities " and " commodities ".
    T could get the meaning of the term from the doc on TWS (980pages).
    I think "options on indice" belong to " commodities " at IB's.
    But more generally, who can say, about an IB account
    #which products are eligible at the "securities " part ?
    #which products are eligible at the "commodities " part ?
    Thanks in advance
  7. pdcaz


    Hi Citta thanks for your response

    I had problems with IB too. If you send me your email, I can describe a case that I do not want to discuss in the public.

    Class action may be possible in USA, it seems that your jurisdiction is UK.
  8. Why is it that I always hear so many stories of crazy liquidations ETC and its always IB

    I never hear about this stuff regarding any other broker.
  9. Citta


    Interesting testimonies :
    pdcaz, kingofshorts, me and who else ? Probably many.

    Well, considering that...
    many sites - like this one- are living on people's appetence for trading (and I woud not say illusion to make easy money, but I think it loud)...

    also considering that...
    some of those forums are sponsored by commercial firms
    (look at who sponsors all the "journals" forums...)

    ...then my advice is to gather testimonies
    about unfair practices of broker
    on some independant place like this one:
    no sponsor, no advice for trading !


    Just an independant and no-commercial site for testimony, mutual aid, gathering facts, building argumentation and more.
    For all concerned persons, let us have a "rendez-vous" there.

    Take care
  10. Dorman Trading on the T4 allows a similar feature; I block myself out of taking any new trades if down 2% on the day (which has never happened).

    Nice story about the cat! Definitely made me chuckle!
    My Puss doesn't understand why she's not allowed on daddy's desk anymore - things like that really do happen sometimes. :D :D
    #10     Mar 4, 2011