Thursday, November 6, 2008


Out-trade can be costly affair for any trader. Out-trade meaning when there is a discrepancy between 2 traders over a transaction, it can be disagreement over volume, price, trade going into wrong trader or trader dispute having any transaction with the opposite party..

Out-trade is common for most heavy volume floor traders, it's part of the business cost due to human error on either party. It's unbelievable that most out-trades ended up losing money. For winners, the traders simply split the profit. For losses in dispute, we can request to view tape as there are many cameras on the trading floor. Disputes are settled after viewing the tape or opt for arbitration if there is still no compromise between the traders.

I have the biggest out-trade of my career in 1997. It involves 10 Nikkei contract amounting to losses of 1,700 tics which is Yen 4,250,000 or about S$68,000 at that time. After viewing the tape, trader QAC admitted that it was her mistake when I told her that the 10 contract was traded with another trader. She made me good and took all the losses graciously without any question.

Till this day, I still remember QAC as a trader who honour her trade and a real gentlewoman. No if and but unlike some traders who tried to argue even knowing they were in the wrong.

Recently, I have a out-trade of another kind or drop out trade in the electronic age, what the hell! I have never expect this to happen, missing trade from my system, hanging in the air and those brokers taking their own sweet time to determine who the owner is.

October was a hectic month, on 27/10/08, Monday, I checked my statement and found I have a imbalance position of long 14 Nikkei Contract and short 5 Topix, a perfect hedge position would be 2 to 1 ratio, which mean I should have only 10 Nikkei contract. I called the backroom and told them of the situation and the additional 4 Nikkei which might not belong to me.

After checking, they called to inform me that there was nothing wrong with my Nikkei trades on Friday and the 4 Nikkei belongs to me. So I am stuck with a naked long 4 Nikkei in a fast falling market. I couldn't believe the 4 Nikkei belongs to me but nevertheless I have to swallow it. Meanwhile, the market clashes and it was too painful to cut the losses.

On Tuesday, when the market recovers, I started to cut the position and was very happy that the damage was not that severe. It was stressful and affected my trading.

On Wednesday, I got a shock of my life when the backroom guy called me in the afternoon to tell me that I have a drop out trade the previous Friday. They will put back 2 short Topix contract into my account. What the f@#k! I was told to cut the position, take the losses and talk later.

The market has gone up and the losses came up to Yen 1,020,000 or about S$15,300/-. If they have found the error another 2 days later, the losses would have been close to S$50,000/- Who is to blame and who is accountable for the losses?

It was my mistake to have trusted the computer completely and assume that the position would never go wrong. But, how to accept a drop-out trade that was put into my account a few days later? Those guys must be sleeping and pushing away their responsibilities.

I am still awaiting an answer to their investigation, and it seems that I have to take the blame and the losses which was my own doing, as the trade belongs to me and I should know my own position. To my fellow electronic traders, check your trades, volume and position before switching off the computer and make sure it tally with the statement the following day.

1 comment:

weird said...

Hi Mr.

So in the end what is the out come of it?