Customer Complaint Dated December 17th 2023

The Financial Commission / Case Examples / Customer Complaint Dated December 17th 2023

Complaint Matter

Mr. XXX has lodged this complaint with the Financial Commission on the following grounds:

The Client used account # XXX (USD) for trading operations with the financial instruments of the FX market.  Before the incident, the Client established several positions (Long and Short) with different financial instruments on the specified account.

Thus, by the time of the incident:

  • The total volume of Long positions in the financial instrument XAUUSD was equal to 0.49 lots;
  • The total volume of Short positions in the financial instrument XAUUSD was equal to 0.49 lots;
  • The volume of Aggregate Short position in the financial instrument XAUUSD was equal to 0 lots.

 

  • The total volume of Long positions in the financial instrument GBPUSD was equal to 0.63 lots;
  • The total volume of Short positions in the financial instrument GBPUSD was equal to 0.63 lots;
  • The volume of Aggregate Short position in the financial instrument GBPUSD was equal to 0 lots.

 

  • The total volume of Long positions in the financial instrument EURUSD was equal to 0.67 lots;
  • The total volume of Short positions in the financial instrument EURUSD was equal to 0.67 lots;
  • The volume of Aggregate Short position in the financial instrument EURUSD was equal to 0 lots.

 

  • The total volume of Long positions in the financial instrument GBPCHF was equal to 0.63 lots;
  • The total volume of Short positions in the financial instrument GBPCHF was equal to 0.63 lots;
  • The volume of Aggregate Short position in the financial instrument GBPCHF was equal to 0 lots.      

The incident on the Client’s account occurred on December 4, 2023, at 01:39 (server time, UTC+2). At the specified time, due to the widening of spread in the financial instrument XAUUSD, which occurred after the short-term increase in market volatility, the Equity/Margin ratio on the Client’s account fell below the critical level. Therefore, the Broker liquidated the Client’s the disputed positions ## 49586486, 49596596, 49596622, 46155870, 48886713, 49259052, 49664998, 49674113, 48886673, 49021139, 49044482, 49175857, 49175865, 49258891, 49693280, 49664695, 49664989, 49693254, 49699199, 49610305, 49696990, 49697606 due to lack of margin (Stop Out). As a result of the forced liquidation, the total amount of the Client’s financial losses was 16661.72 USD.

The Client is not satisfied with the Broker’s decision (see below), accuses the Broker of misconduct and blames the Broker for the financial losses caused by the incident. The Client claims that in the period of the incident, the Broker acted unfairly by liquidating fully hedged positions on his account, where before the incident was 800 USD of free margin. In this connection, the Client requests the Dispute Resolution Committee to verify the correctness of the Broker’s actions in the period of the incident, as well as the correctness of the execution of the disputed transactions. The Client believes that a fair decision in the dispute would be monetary compensation from the Broker in the amount of the financial losses caused by the incident. The Client provided the investigation with screenshots showing the history of transactions performed on trading account # XXX in the period of the incident and the Broker’s official response to this complaint, as documentary evidence.

In turn, the Broker does not see any grounds for the Client’s complaint, since in their opinion all Client’s positions were closed correctly, at actual market prices and in full compliance with the provisions of their regulatory documents and the trading rules established by the Company. The Broker provided the investigation with the history of trading operations performed by the Client, the server log records in the period of the incident, as well as the formal letter from the LP regarding abnormal market conditions during the incident, as documentary evidence.

Complainant Broker
XXX YYY
Financial Commission Complaint #ZZZ
Complaint Raising Date Complaint Filing Date
07/12/2023 17/12/2023
Complaint Response:

The decision on this complaint is based on the information provided by the brokerage company and the Client.

After a comprehensive analysis of the documentary evidence provided by the Client and the Broker the Dispute Resolution Committee of the Financial Commission has come to the following conclusions:

  1. First of all, it should be noted that the incident on the Client’s trading account occurred at the very beginning of the Asian trading session after the weekend. The Client should be aware that the market very often experiences a significant decrease in liquidity during this period. In turn, this circumstance radically changes the flow of quotes, leading to a sharp widening of spreads and the formation of price gaps. The Client should be aware that trading operations in such market conditions involve significant risks. In addition, the geopolitical tensions in the Middle East region that occurred over the weekend (source), caused a significant increase in the market volatility of the financial instrument XAUUSD at the time of the incident.

 

  1. Second, the Client should take into account that even 100% locking on trading accounts with a floating spread is impossible, due to the absence of a fixed difference between the Buy and Sell prices. In the case of position locking (which was the case in this case), spread widening automatically reduces the unrealized positive financial result on profitable positions, while increasing the unrealized negative financial result on unprofitable positions. In some market situations, spread widening can lead to undesirable consequences, such as Stop Out.

 

  1. Third, according to the information received from the Broker (formal letter from the Broker’s Liquidity Provider regarding the abnormal market conditions in the period of the incident), in the period from December 3rd 23:15:00 UTC to December 3rd 23:58:00 UTC due to the immense volatility in the market of the financial instrument XAUUSD during that period, liquidity was limited, leading to high spreads, as most liquidity providers halting pricing altogether. The apex of the low liquidity and higher spreads regime was between the times December 3rd 23:27:00 UTC to December 3rd 23:40:00. After 23:40 prices were normalized and providers that halted pricing for those 13 minutes, have resumed their pricing.

 

  1. Fourth, the trading terms on the Client’s account suggest a floating spread and a Stop Out at the 40% level. This information is clearly defined on the Broker’s website. By opening a trading account of the selected type, the Client agreed to accept the trading terms provided by the Company. In this regard, it should be noted that according to the information provided by the Broker, at the time of the incident, the spread in the financial instrument XAUUSD had widened significantly. As a result, the Equity/Margin ratio on the Client’s account fell below the critical level (40%). As such, due to insufficient margin, the disputed positions ## 49586486, 49596596, 49596622, 46155870, 48886713, 49259052, 49664998, 49674113, 48886673, 49021139, 49044482, 49175857, 49175865, 49258891, 49693280, 49664695, 49664989, 49693254, 49699199, 49610305, 49696990, 49697606 were liquidated by the Broker. This fact is confirmed by the server log records, provided by the Broker. In the period of the incident, the Broker acted in full compliance with the provisions of their regulatory documents:

14.2. The Client shall pay the Initial Margin and/or Hedged Margin at the moment of opening a position. The amount of Initial Margin and Hedged Margin for each Instrument is defined in the Contract Specifications.

14.6. XXXXXX is entitled to close the Client’s Open Positions without the consent of the Client or any prior Written Notice if the Equity is less than a certain rate depending on the account type as stipulated on the Website.

  1. Finally, to ensure an objective investigation of the case the DRC requested historical price data on the financial instruments in the disputed transactions from other independent providers of financial services. Financial Commission uses several different sources, such as Tradeproofer, Tradefora, Verify My Trade, TrueFX, FX Benchmark and some others to verify the quality of trades’ execution. A comparison of the Broker’s quotes offered to the Client with the quotes from independent sources confirmed the fact that in the period of the incident the quotes on the financial instruments in the Client’s portfolio, published by the Broker reflected the actual situation on the market.

Summarizing all the above and taking into account the abnormal market conditions during the incident, the experts of the DRC have made their decision in favour of the Broker. In the general opinion of the DRC members, at the time of the incident, the Broker acted in full compliance with the provisions of its regulatory documents and the trading rules established by the Company. The experts of the DRC found the execution of the disputed orders correct and legitimate since the quotes on the financial instruments published by the Broker were consistent with acceptable market prices. Accordingly, the claim of the Client for compensation of losses in the amount of 16661.72 USD was found by the members of the Committee as having no grounds.

This complaint was reviewed by the members of the Dispute Resolution Committee of the Financial Commission and was processed by the Head of the Committee.

Ruled in Favor Compensation
Broker None
If you have any questions regarding this investigation, please send them to the following address [email protected]
Acknowledgement
I certify that all information was considered by the Dispute Resolution Committee of the Financial Commission and hereby confirm that the decision was made fairly, impartially and without interference. I am confident that the information provided in the document is true.
Signature Designation Date
 Anatoly Bulanov

Head of DRC

25/12/2023
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