Now while doing futures & options trading, the broker square off your position when:
- There is a shortfall in the margin
- The trading session is over for intraday trading.
But what if the broker auto-square off the position without giving any valid reason?
What are the rights of the traders to deal with such situations?
Here is a similar case, where Chetan (name changed) lost ₹50,00,000 due to the auto-square of his position in currency trading.
In April, Chetan had opened multiple short positions in currency trading following a calendar spread strategy worth ₹5,00,000.
To avoid any shortfall he had already pledged shares worth ₹50,00,000 and added a trading margin of 17,00,000.
Due to RBI policy on currency trading, the broker sent a message to square off all the positions in the next 2-3 days to avoid any losses or consequences of the policy.
Chetan followed the instruction and started squaring off his position the next day. By 10 AM in the morning he closed 50% of his positions. But around 10 AM there was a major spike in the market, and the broker squared off all his positions.
Next day when he checked the contract note and trading account, he was astonished. There was a loss of more than₹50,00,000 in his trading account.
He raised concern to the broker on which he got the reply of margin shortfall. However it could not possible as he had already maintained enough margin in the account.
Also, even in the worst case scenario if the margin limit had exceeded there could be a transaction of 50% of the total margin of 64 lakh i.e. ₹32 lakh. However, the broker charged him ₹53 lakh.
He tried multiple ways to settle the dispute. In one of the meetings with the broker he agreed to close this in ₹25 lakh, however the broker denied.
Here are the two major points for which he is fighting against his stock broker;
- If there was a margin shortfall in his account, why didn’t the broker inform him before squaring off his positions.
- Why 100% margin amount is charged however, opened positions were only 50% of the traded value.
Sometimes by giving inappropriate reasons, stock brokers deduct amount from trading account and in most of the cases, due to lack of knowledge clients fail to take any further actions.
However, in this case Chetan, who has been trading for the last 5 years in the currency segment and knows all ins & outs of the market, didn’t fall into the broker trap and seek our help to file a complaint against stock broker to get recovery of his lost amount.
Our team is working and coordinating with the compliance and arbitration panel to provide justice to Chetan.
