Flash crash and risk on capital - Reviews of Brokers and Data Feeds | futures io social day trading
futures io futures trading


Flash crash and risk on capital
Updated: Views / Replies:1,978 / 3
Created: by Nicolas11 Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 90,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors – all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you don’t need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Reply
 
Thread Tools Search this Thread
 

Flash crash and risk on capital

  #1 (permalink)
Elite Member
near Paris, France
 
Futures Experience: Beginner
Platform: -
Favorite Futures: -
 
Nicolas11's Avatar
 
Posts: 1,070 since Aug 2011
Thanks: 2,232 given, 1,729 received

Flash crash and risk on capital

Hi,

I would appreciate a feedback from traders familiar to the field on the following question.

In case of flash crash (or any very quick move), is the trader risking more than the margin?
I have the feeling the answer is yes.

Let's suppose that the trader has an open position in futures (with a stop-loss) and a very quick crash occurs.
The stop-loss could probably not be executed at the required price.
The broker could liquidate the position.
The trader could lose his/her margin.
But...
If the actual loss is greater than the margin, could the broker "take money" in the rest of the trading account?
If the actual loss is greater than the whole trading account, has the trader a "debt" towards the broker?


By reader IB's legal documents (extracts below), I have the feeling that the answer is "Yes". Any feedback would be appreciated!

Thanks in advance,

Nicolas

Extracts from Interactive Brokers documentation:


Quoting 
You can lose more funds than you deposit in the margin account. A decline in the value of
securities or futures contracts that are purchased on margin may require you to provide additional
funds to IB or you must put up margin to avoid the forced sale of those securities or futures
contracts or other assets in your account(s).

IB can force the sale of securities or other assets in your account(s). If the equity in your account
falls below the maintenance margin requirements, or if IB has higher “house” requirements, IB can
sell the securities or futures contracts or other assets in any of your accounts held at the firm to
cover the margin deficiency. You also will be responsible for any shortfall in the account after such
a sale.


Reply With Quote
The following user says Thank You to Nicolas11 for this post:
 
  #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

 
  #3 (permalink)
Elite Member
Berlin, Europe
 
Futures Experience: Advanced
Platform: NinjaTrader, MultiCharts
Broker/Data: Interactive Brokers
Favorite Futures: Keyboard
 
Fat Tails's Avatar
 
Posts: 9,653 since Mar 2010
Thanks: 4,226 given, 25,602 received
Forum Reputation: Legendary



Nicolas11 View Post
Hi,

I would appreciate a feedback from traders familiar to the field on the following question.

In case of flash crash (or any very quick move), is the trader risking more than the margin?
I have the feeling the answer is yes.

Let's suppose that the trader has an open position in futures (with a stop-loss) and a very quick crash occurs.
The stop-loss could probably not be executed at the required price.
The broker could liquidate the position.
The trader could lose his/her margin.
But...
If the actual loss is greater than the margin, could the broker "take money" in the rest of the trading account?
If the actual loss is greater than the whole trading account, has the trader a "debt" towards the broker?


By reader IB's legal documents (extracts below), I have the feeling that the answer is "Yes". Any feedback would be appreciated!

Thanks in advance,

Nicolas

Extracts from Interactive Brokers documentation:

If there is a flash crash or any other disruption of the exchange operation, such as a power failure, a plane hitting the exchange, etc. you will be stuck with your position. That position can not be liquidated, until the operation of the exchange resumes.

Once the operation resumes, your position can be liquidated for various reasons, for example

-> a stop that you have set is hit durinng the open (you will probably be able to remove that stop during the pre-open, if you still want to maintain the position, and want to avoid being hit by the high volatility during the opening phase)

-> the position is closed out by your broker, because you do not have a sufficient maintenance margin

-> the position is closed by the exchange, as some executions prior to the halt were cancelled

It is also possible that the exchange cancels some of your executions, which were intended to close a position prior to the interruption and that you will find yourself with an open position, although you think that you had closed it out.

In any of these cases, you may suffer from a loss, which by far exceeds the stop loss that you have set to protect you.

Tip
You are responsible for your actions and losses, and if your account is depleted, or if the loss you made exceeded the funds in your account, it is obvious that you need to reimburse the broker for the losses.




Different Types of Risk

As a trader you incur different types of risk, that need to be taken into account

-> market risk is well understood by traders
-> operational risk is less understood

Operational risk includes system failures, halt of exchange operations, failure of the Broker's software prohibiting order transmission, failure of data networks, failure of the server or PC you use to trade, etc.

All those risks are clearly at your expense.


How to cope with operational risk ?

Basically look for redundancy. Have ta least 2 PCs, a fixed and a mobile internet connection, use two different brokers, have access to two different exchanges.

Let us take for example the NYMEX failure on February 13. If you got stuck with a short position prior to the failure of the exchange, you could have hedged that position with a long WTI position on the IPE in London. A hedge is never a perfect protection against risk, but it is clearly reducing the market risk your are exposed to.

Another option would have been to go long USO via Arcanet.

Too bad, if your broker interferes with your attempt to hedge your possition, because you cannot keep your margin requirements. You need to make sure that you do not trade size, when you can't afford it.

Reply With Quote
The following 13 users say Thank You to Fat Tails for this post:
 
  #4 (permalink)
Elite Member
near Paris, France
 
Futures Experience: Beginner
Platform: -
Favorite Futures: -
 
Nicolas11's Avatar
 
Posts: 1,070 since Aug 2011
Thanks: 2,232 given, 1,729 received

Fat Tails, simply "thanks a lot!" for your exhaustive message with analysis and advices.

Reply With Quote
The following 2 users say Thank You to Nicolas11 for this post:

Reply



futures io > > > > Flash crash and risk on capital

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)

Jigsaw Trading: TBA

Elite only

FuturesTrader71: TBA

Elite only

NinjaTrader: TBA

Jan 18

RandBots: TBA

Jan 23

GFF Brokers & CME Group: Futures & Bitcoin

Elite only

Adam Grimes: TBA

Elite only

Ran Aroussi: TBA

Elite only
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
Flash Crash Documentary Ryanb Traders Hideout 6 February 11th, 2017 05:51 PM
Could Market Volatility Be Hiding a Flash Crash? GridKing News and Current Events 0 January 31st, 2012 09:06 PM
Flash Crash Threatens to Return With a Vengeance Quick Summary News and Current Events 0 December 30th, 2011 07:40 AM
Year After 'Flash Crash,' Rumblings of a Correction Quick Summary News and Current Events 0 May 4th, 2011 05:20 PM
Was Last May's 'Flash Crash' Actually Caused by the SEC? Quick Summary News and Current Events 0 September 15th, 2010 12:50 PM


All times are GMT -4. The time now is 10:07 AM.

Copyright © 2017 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432, info@futures.io
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2017-12-17 in 0.09 seconds with 19 queries on phoenix via your IP 107.20.115.174