Imagine that you just bought a few ES futures contracts. As you always do, you submitted your stop-loss order concurrently to limit your risk. All of a sudden, your connection to your broker dropped.
You could not check on your position. You could not see if your stop-loss order was working. You received an email from your broker stating that they have suspended all execution of orders. In trying to redeem themselves, they stated that traders with open positions should contact their 24-hour trade desk.
But guess what? You could not get through to the trade desk.
Great. What now?
As a day trader, every price tick counts. Screw-ups and delays are costly. You must learn how to protect your trading interest.
Are you ready to deal with such emergencies?
(I am writing this article due to the ongoing Zenfire saga which affected many day traders including myself. However, this article focuses on how to deal with brokers that screw up and not the Zenfire problems. To learn more about what kind of problems Zenfire users are facing, read this thread at Ninjatrader forum.)
What can go wrong with your broker?
The specifics of what can go wrong depends on the market you are trading and the type of broker you are trading with. However, generally, when traders are unable to enter and exit positions according to their trading strategies, things are wrong.
Your broker’s involvement in the execution of your orders varies. They might be routing the order to the exchange with their own systems or a trading engine provided by a separate entity. They might even be market makers who are the counter-party of your trades, especially in spot forex and CFDs trading.
In any case, regardless of what goes on behind the scenes, if you are unable to trade, you go after your broker. This is because the job of your broker is to put together a system for you to trade.
(Unless you are using a third-party vendor of your choice and it is clear that your broker has nothing to do with it. An example is a third-party market data feed.)
Essentially, our ability to trade is impeded if we are unable to:
- Monitor current price movement
- Monitor current trading positions
- Execute any trading orders
Getting Help From Your Day Trading Broker
When you experience technical problems with your trading, the first thing to do is to contact your broker. Tell them exactly what went wrong and request them to fix the problem as soon as possible.
We have listed the common ways of reaching your broker for help below in descending order of responsiveness.
- Phone (all brokers should have a trade desk dealing with emergencies)
- Live chat (some brokers offer live chat on their websites)
- Forum (some brokers have an online support forum)
Compile the contact information of your broker and keep them near for emergency. Place your broker’s number on speed dial. Save their live chat and forum URLs as desktop shortcuts.
What if you cannot get hold of your broker or they are unable to assist you?
Do not waste time venting your frustration on the poor guy picking up your call. I can assure you that there are tons of traders waiting in line to scream at him. And if the problem is technical, it is unlikely that getting angry at the front-line staff helps.
Instead, let’s see how we can help ourselves.
What can we do when our day trading broker is not helping?
Stop trading. This is the best option when your day trading broker fails. Why risk trading with an unreliable connection?
However, this is not an option for traders who have open positions in the market. Look at hedging your position with another broker as discussed below.
Activate a back-up market data feed. This will allow you to continue monitoring the market and call your broker’s trade desk to execute your position. In such situations, I strongly recommend that you close existing positions but do not to start new trades.
For some forex traders, using a back-up market data feed is tricky because you trade with a dealing desk. Your broker quotes you the bid and ask prices you can trade at. External market data is not reflective of your broker’s quotes. However, most of the time, the external market data is a reasonable proxy for monitoring your positions.
Trade with a back-up broker. If you are unable to trade with your primary broker, switch to using a back-up broker. Implement your trading strategies with the back-up broker. Reassess how your primary broker is doing before shifting your trading operations back to them.
Make sure that your back-up brokerage account has sufficient funds for trading.
Maintaining back-up data feeds and brokerage accounts increase your operating costs. However, if you want to manage the risk of your day trading broker failing, you should get them ready.
Hedge using a back-up broker. For traders with open positions and are unable to close them with your existing broker, you might want to hedge your position with your back-up broker.
Hedging is simple. If you have a long position with your primary broker, go short with your back-up broker to effectively exit from your bullish position. The reverse applies for exiting a short position.
However, before you start hedging, run through the following questions.
- Do you have a position to hedge? Your broker’s systems are screwing up. Are you sure that you have an actual trading position on? Verify, verify, verify.
- Do you have live stop-loss and target-limit orders? If your stop-loss and target limit orders are live (effective), then you do not need to hedge your position.
To answer these questions, it helps to know where your orders are held. There are a few possibilities.
- Held locally on your trading platform
- Held on broker’s servers or trading engine
- Held on exchange
Orders held locally are gone once your trading platform loses connection. Orders held on trading engine are effective as long as the trading engine is still executing orders. Orders held on exchange are live, until cancelled or until the end-of-day depending on the type of order.
Where your orders are held depends on many factors including your broker, trading platform, trading engine, and the exchange. Ask your broker to explain the order routing process. Having a clear picture of how the orders flow will help you react better to technical failures.
Should you change your day trading broker?
This is the question we have after every broker screw-up.
Do not be too quick to switch brokers. No broker is perfect. It takes time and effort to transit and there is not guarantee that the next broker will not screw up some day.
Instead, pay attention to how your broker handled the issue.
- Did they take reasonable effort to rectify the problems?
- Were they upfront about the problems?
- Did they offer compensation as necessary?
The answers to these questions will decide if you should change your day trading broker.
When your broker fails, it is a stark reminder that day trading is a business. It has many aspects beyond just your trading strategies, and each aspect is critical to the success of your business.