Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Oil crash busted broker’s computers and inflicted big losses

bloomberg.com

Post reply on HN
Print view View original

51–60 of 182 posts

Re: Oil crash busted broker’s computers and inflicted big losses

#51

Post by topynate »

H8crilA wrote: post #6
AndrewBissell wrote: post #2

Incorrectly assuming values can never be negative is an all-too-common occurrence in trading and financial software. In 2012 Swedish stock futures trading was suspended for a time because their matching engine used an unsigned type for order quantities and someone submitted an order with a negative value which wrapped around to 4 billion: https://www.reuters.com/article/markets-sweden-bug/swedish-s... Interactive Bro…

I particularly dislike the attitude of the CEO which shows he either doesn't know or pretends that he doesn't know how such contracts work. Please read the contract specs and educate yourself a little, Mr. Peterffy, they're public and free. > 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…

"No economic justification"? That has to be faux-naïf. Yes, I was shocked at first to hear of prices turning negative. For about thirty seconds. Once I learned that the oil had to be delivered somewhere without enough storage, and under conditions of extreme low demand, it was perfectly obvious that you'd end up paying someone else to take the oil off your hands. Either Peterffy is too stupid to understand mass-media reports on his own field of business – not likely – or he's disingenuous, which says something about how he sees his clients.

Re: Oil crash busted broker’s computers and inflicted big losses

#52

Post by supernova87a »

For futures on physical deliverable objects (well, I guess most futures are such, but anyway) -- would volatility and speculation be dampened/improved if the clearinghouse forced everyone (or the seller) participating in a trade to certify that they had rights to the specific thing being traded? Could actually produce the contract -- like the oil producer is certified to have barrels allowed to be sold?

My notion is that if much of the trading (and it can be shown by futures volumes) cannot possibly be on actual physically deliverable quantities, then most must be "speculation" by people who cannot actually produce the asset. Would this be a help to stabilize the market?

I know it all has to get settled in the end by the expiration date, but just an idea.

Re: Oil crash busted broker’s computers and inflicted big losses

#53

Post by azinman2 »

AndrewBissell wrote: post #8
H8crilA wrote: post #6

Earlier quoted context omitted.

I particularly dislike the attitude of the CEO which shows he either doesn't know or pretends that he doesn't know how such contracts work. Please read the contract specs and educate yourself a little, Mr. Peterffy, they're public and free. > 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…

Yes this is a very CYA statement. IB has been in this business for a long time, Peterffy knows very well that expiring futures contracts can experience all kinds of liquidity problems and large swings in price.

But if it’s never happened before, and you’re some random programmer making this stuff, I’m not surprised there are all kinds of assumptions being made when choosing data types and validating inputs...

Re: Oil crash busted broker’s computers and inflicted big losses

#54

Post by kasey_junk »

supernova87a wrote: post #52

For futures on physical deliverable objects (well, I guess most futures are such, but anyway) -- would volatility and speculation be dampened/improved if the clearinghouse forced everyone (or the seller) participating in a trade to certify that they had rights to the specific thing being traded? Could actually produce the contract -- like the oil producer is certified to have barrels allowed to be sold? My notion is…

It likely will settle the markets by driving spreads through the roof and costing buyers/sellers of the physical items.

The underlying theme here is that speculators are not providing utility to the market, which is wrong. They are bridging time and risk.

Re: Oil crash busted broker’s computers and inflicted big losses

#55

Post by wpietri »

elliekelly wrote: post #9

> 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 ended up with 25,000 pounds of copper delivered to somebody's parents house. Oops!

Re: Oil crash busted broker’s computers and inflicted big losses

#56

Post by elliekelly »

curiousllama wrote: post #48
elliekelly wrote: post #9

> 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…

The other issue here is that there IS an economic justification: everybody bid up the price of storage. If it costs me $60 to store a barrel I can sell for $10 later, then I'll pay someone $40 to take it off my hands now. An asset became a liability, hardly a rare concept to anyone who has owned a car they had to pay someone to tow away... CEO is just passing blame.

Interesting point. Have we commoditized and securitized the storage of commodities yet? Can someone purchase oil storage futures contracts to mitigate this risk?

Re: Oil crash busted broker’s computers and inflicted big losses

#57

Post by CydeWeys »

vardump wrote: post #27
AnimalMuppet wrote: post #25

Earlier quoted context omitted.

If you get into the market for physically settled contracts with no intention of taking delivery, then you're almost certainly a speculator. I'm not sure that it's the market's job to make that safer for you. I am not justifying inaccurate pricing. Burning speculators is fine, but give everyone accurate information.

Or possibly someone who needs large amounts of oil and want to hedge against fluctuations? Freight industry, airliner, etc.

Airlines buy futures in Jet A or Jet A-1. They have no interest in crude oil because they aren't refiners and they have nothing to do with it.

The freight industry will similarly buy futures in bunker fuel, diesel, or whatever exactly they use to fuel their vehicles. Again, they're not refiners and have no use for raw crude.

It's the oil refiners that buy futures in crude. Well, them and speculators.

Re: Oil crash busted broker’s computers and inflicted big losses

#58

Post by mathgenius »

whatok wrote: post #37
everlost wrote: post #35

Earlier quoted context omitted.

Wasn't this a cash settled contract?

No.

It may have been ICE's crude contract, which is cash settled: https://www.theice.com/products/213/WTI-Crude-Futures

"The West Texas Intermediate Light Sweet Crude Oil futures contract is cash settled against the prevailing market price for US light sweet crude."

Re: Oil crash busted broker’s computers and inflicted big losses

#59

Post by sulam »

wpietri wrote: post #55
elliekelly wrote: post #9

> 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…

Sounds apocryphal.

Re: Oil crash busted broker’s computers and inflicted big losses

#60

Post by mathgenius »

defen wrote: post #47
wbl wrote: post #18

Earlier quoted context omitted.

Financial settlement against a spot market in a large port.

WTI (West Texas Intermediate, the one that went negative) is already settled at a specific place: Cushing, Oklahoma. Unlike with Brent Crude you can't just drive a tanker up to Cushing Oklahoma. So if you buy a WTI contract you are promising to take delivery of 42,000 gallons of oil there...it's the nature of the contract that there's no way around this.

ICE offers an equivalent cash settled contract, that takes it's value from CME's closing prices.

https://www.theice.com/products/213/WTI-Crude-Futures

Post reply on HN