Comments about storage costs are nice theory but don’t tell me those storage costs went up 50 dollars a barrel to cause CLK0 to go from +10 to -40 within something like 30 minutes. It was all forced liquidation by brokers like IB and people absolutely bamboozled by negative prices puking their positions. Nothing to do with costs for actual storage.
Oil crash busted broker’s computers and inflicted big losses
131–140 of 182 posts
Re: Oil crash busted broker’s computers and inflicted big losses
#132Earlier quoted context omitted.
Agreed. IB's data is also not so accurate much of the time; the way it reports volume in particular is misleading. I've seen traders abandon IB after big losses because their strategies required actual live volume data that didn't suck, and nearly any other broker provides this.
What are some recommended alternative platforms that provide api access?
I know a few who moved to tradestation. But there are others as well.
Re: Oil crash busted broker’s computers and inflicted big losses
#133> Its software couldn’t cope with that pesky minus sign, even though it was always technically possible -- though this was an outlandish idea before the pandemic -- for the crude market to go upside down. Wow, just wow. They are handling millions (billions?) of dollars every day and couldn't find the time to test that they can just DISPLAY a minus sign. That's insane. And it's not even that outlandish. People were sa…
Makes me wonder about their testing - any decent tester is going to throw a negative number in as a matter of course.
I have a gut feeling that this bug was flagged and closed as WONTDO because "that'll never happen"
Re: Oil crash busted broker’s computers and inflicted big losses
#134I would recommend http://www.saxobank.com , it's a kick ass broker.
Re: Oil crash busted broker’s computers and inflicted big losses
#135> Peterffy said there’s a problem with how exchanges design their contracts because the trading dries up as they near expiration. The May oil futures contract -- the one that went negative -- expired the day after the historic plunge, so most of the market had moved to trading the June contract, which expires May 19 and currently trades around $24 a barrel. > “That’s how it’s possible for these contracts to go absolu…
> It’s pretty well known that commodity futures contracts are a game of hot potato Very much so. I wrote software for financial traders in the 1990s, and I heard tell of a couple of clerks (in this context, sort of "trader intern") who thought they were smart enough to do a little commodity metal trading on the side. However, they didn't quite understand the details of contract expiration, and so supposedly they ende…
Everybody has heard of this happening to their friend's cousin's ex's colleague. In practice you can't trade futures without a broker, and your broker won't let you take futures to delivery unless you convince them you have the facilities to deliver or take delivery. And if you do take delivery of copper futures on the main exchanges (CME or LME), you get "warehouse receipts" which entitle you to turn up at some industrial estate and collect your copper, and which can be resold.
Re: Oil crash busted broker’s computers and inflicted big losses
#136> Its software couldn’t cope with that pesky minus sign, even though it was always technically possible -- though this was an outlandish idea before the pandemic -- for the crude market to go upside down. Wow, just wow. They are handling millions (billions?) of dollars every day and couldn't find the time to test that they can just DISPLAY a minus sign. That's insane. And it's not even that outlandish. People were sa…
Makes me wonder about their testing - any decent tester is going to throw a negative number in as a matter of course. I have a gut feeling that this bug was flagged and closed as WONTDO because "that'll never happen"
Just as likely it was a feature. If you really think "that'll never happen", then the right thing to do is explicitly ignore negative prices or refuse to send orders at negative prices, and that's exactly the kind of failsafe I'd want to have in my trading software, since you can get spurious prices for all kinds of reasons.
It turned out the assumption was wrong and yeah, you should remove the logic handling that once it's evident futures may go negative, and you should have a process capable of making that change with only a day or two notice. But being robust the rest of the time at the expense of mishandling a once-in-fifty-years event is not in itself a bug.
If you disagree, should a trading system also allow negative prices for precious metals futures? Stocks? Currencies? Options? Bonds? Futures on stocks or bonds? I can contemplate all of those trading negative in extraordinary, contrived scenarios but I would design systems today not to trade them at negative prices.
Re: Oil crash busted broker’s computers and inflicted big losses
#137Wasn't the original purpose of futures to let farmers and others lock in prices early so they can mitigate risk? Speculation on futures seems dumb if you have no intention of taking delivery.
Capital One was short oil futures because they had loaned money to energy companies and wanted to hedge risk. They accidentally ended up with a big enough position that they almost had to be classified as a market maker.
Re: Oil crash busted broker’s computers and inflicted big losses
#138Earlier quoted context omitted.
Peterffy is talking out of his ass, they had more than 5 days. CME's current specifications for order entry/market data has been in place for years now. Whoever was writing their software on their backend failed to read the documentation. https://www.cmegroup.com/confluence/display/EPICSANDBOX/Posi...
While I don't doubt that what you say is true, systems which, by spec, should be able to handle a given situation, that then years after they were written finally are called upon to handle that situation, fail more often than not. The CEO also said they would pay $100million to clean up, which is not chump change, even for them I bet. I'm not saying they were blameless, but I think most systems which have never had a…
Nat gas prices went negative pretty famously (in the biz) around 2010 or so. I give everyone a pass based on what you said until then. After that no free passes. IB screwed up.
Re: Oil crash busted broker’s computers and inflicted big losses
#139Earlier quoted context omitted.
Peterffy is talking out of his ass, they had more than 5 days. CME's current specifications for order entry/market data has been in place for years now. Whoever was writing their software on their backend failed to read the documentation. https://www.cmegroup.com/confluence/display/EPICSANDBOX/Posi...
While I don't doubt that what you say is true, systems which, by spec, should be able to handle a given situation, that then years after they were written finally are called upon to handle that situation, fail more often than not. The CEO also said they would pay $100million to clean up, which is not chump change, even for them I bet. I'm not saying they were blameless, but I think most systems which have never had a…
They are not the first people on the planet to encounter edge cases. You either test thoroguhly enough for them or you don't.
Re: Oil crash busted broker’s computers and inflicted big losses
#140Earlier quoted context omitted.
A lot of businesses are impacted by the price of oil even if they don’t directly take delivery. It serves as a really valuable hedge for airlines for example, where it’s a key cost driver, even if it has to go through a refinery first.
You don't need to trade a physically settled contract for that though! Just hedge on a cash basis or hedge directly on the item you do need delivery on. Seriously, do people enter into contracts like this in other parts of their life?
Cash settled contracts add a layer of indirection: we have to agree on a method to determine the price of physical oil on our preferred date. There is a popular cash-settled future for WTI crude. It trades on ICE and uses the settlement price of the CME future as its reference price, so exactly the same issue arises there.
As for trading exactly the item you will need delivery on, that may be hard to find. Standardising on a contract that's "close enough" allows crude oil producers to trade with airlines, bus companies to trade with refineries, etc, even if they all care about different products.