Wednesday, September 20, 2006

Stuck

Short

Your broker is down

and the market is rising

A predicament not just one trader found himself in yesterday.

What do you do? Do you have a plan or do you revert to Hope?

I for myself prefer a plan. And this plan first calls for analysis of the problem.

1. What is down?

  • The Internet
  • Your broker’s servers
  • The exchange

2. What is your response?

  • Always have a 2nd Internet connection connection installed, tested and ready for use Cheapest solution is a dial-up connection, but you might also consider having one using your Laptop and Handy. Even without datapacket subscription, you can establish a Dial-Up connection using your Handy to connect to the Internet. A data-cabel connecting your Laptop with the Handy is much more reliable, than the already existing Infrared or Bluetooth connection and will cost you about $2 on Ebay.
  • If that’s not working call your broker and exit immediatly. You will need the phonenumber nearby.
  • Have a backup broker. Then you have the option to offset any open position at any time
  • If the exchange is down, then you need to have a list of contracts traded on other exchanges, which will enable you to offset any position you have at least partially. You just need to calculate how much they move on average for each tick the contract you have the open position in, will make, so you know what size you need to trade.
    During the US markets RTH the German DAX as well as the Eurostoxx50 are both actively traded on Eurex and might be used to offset any open US index position.
    The Bonds may be offset with a position in the German Bund.
    Open currency positions might be hedged with a Forex position, if you have a Forex account. Otherwise, at least during US RTH EUREXUS offers currency futures as well, even if these are not very actively traded.
    Energy contracts on NYMEX can be offset with contracts traded on IPE

Being stuck in a position is no excuse for a loss. There are options available to you.

 

4 comments:

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disciple said...

Chris,

re. hedging a position when the exchange is down; How do you know when the original trades are going to be broken? If you hedge an open position, then later on find that the stuck trades were broken (as I believe ECBOT has done a couple of times this year with the YM), you can still find yourself in a world of hurt. (Since now the position you thought was a hedge turns out to be a standalone trade).

thanks.

disciple

Globetrader said...

disciple,
you can't control everything. You are a trader, taking risks is your profession. Yes you can be in a world of hurt, if the original trade is broken, but how often did that happen to you? And how often was your broker down, compared to that?
You have to decide what you will do in case you are stuck in a position. All I'm saying is, that you have options and you need to know these in case you need to act fast.

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