Bungle #6 Human error
I attempted to buy an iron butterfly (IB) today for a $1.14, using Interactive Broker's TWS. This was a credit trade ie. I was to receive $1.14 for this trade. I was careful to preview my order to ensure that it was indeed a credit trade. IB's convention is that if you bought a spread for a credit, the price of the spread is shown as a negative price. I verified that it was -$1.14. I then transmitted the order. So far so good.
I then decided to change my price for a better credit of -$1.16 and wait for a fill. I clicked on the price field and must have hit the backspace key all the way to the left, when I should have stopped at the minus sign. So I entered $1.16 instead of -$1.16 and hit the transmit button. To be honest, I'm still unsure that I actually made this mistake, but the audit trail suggests that I did.
It was an instant fill, much to my surprise. Fear set in. This is really turning into a nightmare. I checked my invoice and to my horror, it was a debit instead of a credit.
I called IB customer support. They contacted the counter party, which I assume is the MM. The counter party refused to accept that a mistake was made when it clearly was the case. I lost my faith in humanity today. The worst in us surfaces when interactions are anonymous.
I have bought and sold IBs a few times and have never made a mistake until now. This is one hard mistake to forgive myself. I also find it hard to believe that the trading platform did not have a reasonableness test built into each order. If dropping my coffee cup onto my keyboard accidentally resulted in $100000 being the order price transmitted, I dread to think what the consequences of that would have been.
Lessons learnt:
1. Spread orders are not bound by bid and ask prices. If you enter an incorrect price, you are not limited to the bid and ask price.
2. Human errors will occur. You can only try your best to be as careful as possible.
Hey Fox - it is recorded somewhere here in the archives of ASF where I was also bitten by IB's negative pricing on spreads. I lost 3K in the blink of an eye. I had not previously had any experience with negative pricing and found it quite confusing to say the least. Had a similar response from IB as you did.
At the time, I went through all the ASX documentation and found buried somewhere in their site that online brokers to the Oz market are required to ensure adequate filters for online trading. I believe you should at worst pay no more than the ask on any leg and get no less than the bid on any leg. I felt that, if there had been adequate online filters, there would have been an error message of some sort giving the opportunity to cancel the order.
The ASX site do have a complaint form. I filled one out on the basis of the lack of adequate filters, but in the end decided not to proceed at that time. My reasoning was that IB would probably get upset and wouldn't want me as a customer - leaving me stuck with Oz brokers high fees. At the time, I was trading quite heavily and would have lost a similar amount in fees alone over a period of time.
I also thought IB had fixed this negative pricing in spreads. I remember sending an email to their Oz office and it all appeared to be fixed at the time. Option trading is difficult enough without having to deal with negative pricing when positive pricing with the appropriate buy or sell attached to the order does the job and removes that element of confusion.
I think I still have the ASX form I filled out somewhere if you are interested in how I had planned to go about the complaint. I'm not one to blame others for my mistakes, but don't like it when the mistake has happened due to someone else's slackness.
One of my initial reasons for considering sending in a complaint to the ASX was to hopefully help prevent others from getting burnt in the same eat - so now I am regretting not following through as it may have forced IB to improve their filters and spared you (and maybe many others) the pain.
I also have my suspicions that this is something that is not a worldwide thing with IB - possibly just in the Oz market and maybe other smaller countries. I have never heard of anyone using IB for US trading complain of this negative pricing thing.
If anyone is using IB to trade US options - have you ever had spreads show up as negative amounts? eg you want to sell a spread, but the order shows up as a buy with a negative price?
Anyway, sorry for the late reply - didn't log into ASF for a few days!
