I have two doubts with the RMS, If I have just enough balance required to have my position (Say I am short on an index or stock option). All of a sudden something drastic happens (so called black swan). I am not able to square off because there is a problem with the broker’s OMS. In such a situation the position has potential to lose very huge money than the margin required to take the position. Normally the RMS of the broker should square off my position. But what happens if the broker’s RMS also fails? Or in case of intraday the system does not allow the client to place order after the cut-off time. Who will be responsible for the loss? And what happens if the loss is greater than the margin blocked?
This is something every trader has to factor in - technology risk. Every product which is enabled by technology (almost everything) has a risk of going down - from AWS to Google, NSE to NYSE, and every brokerage firm in the world. If your position is open and you make losses, it will be debited on your account. If loss is greater than margin blocked, it extends to your free balance as well.
As a trader who uses leverage, I think the best way to cover for this risk is by not putting more than 2 to 5% of your capital on a single trade. This way a black swan event, be it in terms of tech platform going down or markets suddenly moving doesn’t affect you significantly.
what if client didn’t pay negative balance for several years ? interest goes up and then what ?
A brokerage firm can take all legal routes to recover the money.
I understand that technology carries a risk and none can do something about it. But don’t you think it is unfair to pass on the entire loss to the customer and the broker can walk free of liability though prima facie the broker’s role is higher than the client in the case I posted? I think the safest way is to invest in stocks or go for trading only where the bracket order feature is available.
I might not have understood your reply correctly but I am not talking about leverage. I cannot trade index derivatives and the only option available to the client is to pay the margin required to take a carry forward or even intraday position. The only safety valve I think is the circuit breaker and thus the loss cannot be really unlimited though it will be too huge.
This is something very important. Imagine that you are a trader in Kashmir (or any other place for that matter) and suddenly Internet and phone services are snapped. You will make huge losses. It’s important not to put much of your capital on the table at any particular point of time.
The broker has nothing to do in these cases and is covered by the obvious force majeure clause. The point I was trying to know and even highlight is how the broker can absolve all his liability and only the client has to bear that when the problem arose in the interface provided by the broker.
What is the maximum debit by any client u faced ? have u got it back
We have had many small debits, nothing large by one client. Hopefully stays this way.
@nithin Don’t want to pry but there would be someone, I myself lost over 90-95% of my account, around 3L in a single trade a few years back. It would be highly entertaining and educational if you could share some of those anecdotes, what went wrong and why? Even Hypothetical and outside Zerodha cases would do…
wow , what was the reason for that loss ? no stop loss ? platform not working ? what happened ?
Nothing of the sort, totally my fault. Was bored sitting and got into an intraday position way above my capacity into a somewhat illiquid stock, I had to get out of the trade and as I mentioned the stock was illiquid and one of my own exit trades hit the stoploss and well all the other orders were placed at market order and hence the substantial loss.