XIV margin call at Questrade.......any recourse?

Discussion in 'Retail Brokers' started by Hotcakes, Feb 7, 2018.

  1. JackRab

    JackRab

    Also... let's assume that Questrade would have liquidated his XIV position somewhere at -70%...

    What if it would rebound after that? He would probably be complaining that they liquidated and that they shouldn't have done that...

    Moral of the story... don't blame others for your own f#$k-ups....
     
    #11     Feb 7, 2018
    KeLo and dealmaker like this.
  2. sss12

    sss12

    Do you really think there was a viable market after hrs for a security that was liquidating by prospectus ? Who possibly would be on the other side of that trade ?
     
    #12     Feb 7, 2018
    dealmaker, Metamega and JackRab like this.
  3. JackRab

    JackRab

    Bitcoin HODL-ers assume there's a 24/7 market in everything... it wouldn't surprise me if OP's friend is one of them.
     
    #13     Feb 7, 2018
    sss12 likes this.
  4. sss12

    sss12

    Well, there is a 24/7 market for most of life's desires, but you will pay dearly for them.
     
    #14     Feb 7, 2018
    JackRab likes this.
  5. Use IB, which has auto liquidation so at least it tries to you keep you in the black, instead of going into debt and owing them money for a margin call. They're not doing this for you, but to protect themselves, but it's one of those win-win situations that at least it works in the interest of both parties.

    Other brokers offer the margin call model, no.1 because of technology. Auto-liquidate requires an automated system in place and robust risk management strategy. Many brokers are old school. No.2 margin calls offer clients an option to stay in the market. You might only have $10K in one broker, but it doesn't mean that's all you have. If something tanks that you bought on margin, maybe you want to keep the position. So margin call is option to stay in the game rather than force a loss and a tax event.

    In the case with IB, I think they require 100% margin on the VIX products. So between that and autoliquidate, it would have been unlikely for margin debt in the event trade went against you like that.
     
    #15     Feb 8, 2018
  6. Hotcakes

    Hotcakes

    Turns out my friend was leveraged at 2:1 on the trade. Hence the negative account balance. Unsure if my friend will post.

    Thanks for the replies.
     
    #16     Feb 8, 2018
  7. Hotcakes

    Hotcakes


    Clearly, there was after hours trading on the XIV with significant volume. It didn't "gap" down.... Call me crazy, but I doubt brokers are patting themselves on the back right now for holding 7 figure losses on their clients XIV trades because the market 'may have come back' and auto-liquidating to protect client accounts would have 'angered some clients'....

    The VIX doubled during regular market hours Monday, causing obvious havoc for a product seeking to track its inverse return. Though, the XIV dropped just 14 percent during regular trading.

    But then after hours trading began and the security, popular with hedge funds betting on an ever-placid market, was off by 80 percent in extended trading.
    https://www.cnbc.com/2018/02/05/xiv...linked-to-volatility-plummets-80-percent.html

    [​IMG]
     
    #17     Feb 8, 2018
  8. Fault and recourse are two very different things. Lot's of investors who were at fault still had recourse after the 87 crash. Having said that Questrade is a Canadian house and I have no sense of Canadian securities regs. Rest assured that there will be a ton of litigation arising from the events of the last few days. Doesn't mean that's right - it's just the state of the industry. In the short run he'll need to resolve his short term account issues. Recourse will come later as these events wind their way through the system.
    This is when you want to review all of his documentation and store it. Events like this showcase why you always want to be factual on your new account form.


    No one is ever suitable to lose 100% of their net worth.
     
    #18     Feb 8, 2018
  9. sprstpd

    sprstpd

    Not positive, but I'm not sure IB would auto liquidate in afterhours trading (which is when XIV crashed). The 100% margin on VIX products would have helped though.
     
    #19     Feb 8, 2018
  10. XIV is not marginable at IB, so yeah even if it went to zero, you're not gonna be in debt to them as you can only trade what you have in equity. XIV gapped down, but would not have mattered for 100% margin stocks as you're trading your own money like a cash account.

    A person could have other marginable positions on, and those can fall along with the market, but IB liquidates once it hits a buffer. Someone with knowledge can chime in, I think throughout it's history there were maybe only a few times where a margin call is made, right? It shows their technology and risk management works in protecting themselves, but also IMO the trader. Lose everything, sure, but few want to go into debt.
     
    Last edited: Feb 8, 2018
    #20     Feb 8, 2018