This is not really an issue of whether prices can go negative though. It'ss whether IB supported negative prices, and whilst it's true the drop happened quickly, this was a known likelihood for a few weeks. The fact that IB kept letting people go long at positive prices, knowing they couldn't execute stop loss trades at negative prices is frankly terrible.
The fact that IBKR couldn’t handle a negative oil price at that time made me realize that for all their marketing as being a higher quality broker for serious investors, they had some serious holes.
Then when they stopped buys on GME while Vanguard and Fidelity still allowed them, I gave up on IB completely.
Right now I’ve bought puts on IBKR - I expect a lot of clients with money will drop them (along with Robinhood etc.) and move to Vanguard/Fidelity.
IB claimed to have hiked margin to 100% which is a reasonable response. However, I have heard from many sources that they in fact rejected buy orders even with cash - which, if true, and I have every reason to believe so, makes any explanation about margins and technical reasons seem ridiculous.
There is surely some deeper non public reason that every single retail broker - but no single institutional broker - stopped accepting GME buys but kept honoring sells. It might or might not be a call from hedge fund buddies, but it is still likely illegal.
When I was working at a hedge fund, I once executed a few hundred mil notional on a supposedly anonymous exchange, taking advantage of an obvious counterparty mistake.
Within 10 minutes, I got a call from said counterparty, telling me that next time I do that, they’ll make sure I’m kicked off the exchange.
Anonymous my ass. Legal my ass. And yet, it happened - I’m sure I wasn’t the first or the last - the other side kept making those mistakes. I stopped taking advantage of them. This kind of behavior is rampant in Wall Street. Only difference is it has been done now in the open, very visibly, and with thousands - perhaps tens of thousands - identifiable victims.
You couldn’t sound more clueless here. A rare screwup by IB for sure but the only reason you’re hearing about it is because the CEO is a standup guy. (Very sharp one too.) Other brokers would no doubt sweep this under the rug and/or pursue their customers for the losses.
IBKR is great but they have fucked up before as well. When oil futures went negative early last year, IBKR's software could not handle a negative sign and led to traders not being able to close their positions. Luckily, IBKR took it to the chin and compensated more than $100 million in losses anything their clients owed below $0.
I wouldn't call it a flaw. Their product can handle the high volatility, their finances can't. At least, that's what we believe is true since they got a $1B loan yesterday. But Tenev, the CEO, was on TV yesterday saying that it wasn't a solvency issue...so....
Interactive Brokers Chairman, Petterfy, highlights that in his interview. He also said it caused clearing issues and that his firm could afford it. They just, you know, decided to halt trading cause he thinks the squeeze was illegal.
“Five days, including the weekend, with the coronavirus going on and a complex system where we have to make many changes, was not a sufficient amount of time,” he said. “The idea we could have bugs is not, in my mind, a surprise.” He also acknowledged the error in the margin model Interactive Brokers used that day.....We have called the CFTC and complained bitterly,” Peterffy said. “It appears the exchanges are going scot-free.”
Thomas Peterffy must think we are idiots. Anyone who trades commodity contracts for any period of time knows that the real cost of the contract is the actual cost of the commodity - storage costs. When storage costs spike and the actually commodity spot costs go down, the future will become negative!
One way to get a handle on storage costs is think of them being inversely proportional to the value density. The higher the value density, e.g. gold the less the storage costs. Oil is not so dense so storage costs matter. Financial instruments like the Treasury Bonds and the S&P futures contract have zero storage costs. Storage cost is of-course different than carry cost (the cost of funding your long position).
On another aside, I have known folks who have worked at IB in the past, and their systems absolutely suck dead goats. Huge masses of legacy C++ code with poor testing. Most of these brokerage firms have legacy code base from the 90s that is poorly understood. They also have nonexistent organizational quotient around code validation, correctness and testing their risk models. A futures margin model is not something one can whip up over a weekend but a good CS undergraduate can program one over a couple months.
Sorry for the IB customers but I have zero sympathy for IB or should I say negative ;)
I'd be very careful to categorically state what is true or isn't true on a topic that you may not quite be an expert in.
Brokers have no ability to liquidate a position on a company that declares bankruptcy after market hours. In fact, most major events happen during times when trading is either halted or the market is closed.
As sad as it is, there are people who have committed suicide over having a negative balance including this individual who carried a -$730,000 balance:
I guess the price slumped faster than the exchange could liquidate his position. It makes you wonder what an exchange was thinking letting someone build up a $0.5 billion position on margin.. Surely that's just very poor risk management on behalf of the exchange?
This is what's pissing me off. I had a tiny "fuck it" position on BB with a stop-loss that kicked in. Now I can't get back in at the lower price and the one way ban is likely why the stock fell under my sell price.
No warning from Robinhood on the current issue either or I would have pulled my sell order.
That’s not how stop losses work. If things are falling fast enough, You could have one trade at $7, and the next trade at $4. Sorry, you still lost money.
Oh wow. I've always thought IB to be the most "bare metal" trading platform available to regular people. If they're denying buy orders, then where does a plebe go to get direct access to the market?
I think you’re anchoring too much on the stop-loss thing. It’s pretty reasonable for a trading firm to not rely on such mechanisms. One would hope they would have a more sophisticated way to manage risks. I’ve no idea what happened in this case though.
During the duration of restricted flow there were 800K shares sold at $120 and $140 in two batches on Thursday, significantly lower than the market price, infact, whoever sold them got sold them at 300M less than market value. This sudden drop caused the price to fall and trigger stop losses. This happened before.
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