Professional Trader Claims

All investors, whether retail or professional, rely on their brokerage firm to give them accurate pricing information for any securities they are trading or considering trading. Investors also rely on the broker and brokerage firm to correctly enter the trade that the investor selected, whether that be a purchase or sale, limit order or market order. For professional traders, this reliance goes much further. Real time, accurate pricing data is critical for many professional traders who are trading on very thin margins and are often trading far more frequently and with far shorter holding periods than the ordinary buy and hold investor. Similarly, as a result of often large trades aimed at capitalizing on small margins, trades that get executed minutes, and sometimes even seconds, after they are entered can have completely different and often devastating consequences for those trades.

A brokerage firm’s treatment of margin is also very important for most professional traders. The majority of professional traders use margin to increase their profits. However, these margin systems carry risks of problems, including potential issues with margin requirements and, more commonly, liquidation systems developed by the brokerage firm. Proper and accurate calculation of margin buying power and maintenance requirements are vitally important for professional traders using margin. In addition, differences between a Regulation T margin account and a Portfolio Margin account can have a tremendous impact to the trading strategies that can be accomplished with the same amount of starting capital. Moreover, when dealing with Portfolio Margin, how the brokerage firm calculates the margin requirement, offsets and maintenance is key, and often proprietary and opaque to the trader.

Virtually any trader who uses margin for any prolonged period of time is going to receive margin calls. Often, firms provide traders an opportunity to correct the margin deficiency before the firm takes any action, either by providing additional funds to the account, or by taking corrective action in trades to reduce the margin exposure. However, firms contractually permit themselves with the account agreements to take action to protect themselves in margin accounts without notice or opportunity to correct to the account holder. Whether the firm takes action without notice, or provides notice and the account holder does not take action to correct the deficiency, the firm’s liquidation systems will then step in and begin entering trades to supposedly correct the margin deficiency.

Some firms will enter these trades manually, where some individual on behalf of the firm will make decisions regarding which positions to unwind and in what order. For many other firms, these decisions are being made by a computer program. Either way, whether by human error or software error, these systems are not perfect. In some cases, brokerage firms may order trades in a manner that actually increase the margin risk of the account, rather than decreasing it. In other cases, there may be issues where assumptions are being made about the price a particular security would get on the market that are wildly inaccurate, rendering the entire series of trades defective. In yet other cases, the liquidation systems may be trading in a bad market and failing to obtain nation best bid/offer pricing, as all orders are required.

Our trading fraud attorneys have a wide range of experience. We are experienced trade execution lawyers and margin liquidation lawyers and can help professional traders recover wrongful losses.

Trading conducted by algorithms has opened up arbitrage and other investment opportunities that were impractical or cost prohibitive in earlier times, due to a combination of the complexity of the trading and the volume of trades typically necessary to become profitable at incredibly small margins and high leverage. These strategies can fail and result in claims where, for example, the algorithm is inherently flawed and incapable of fulfilling the promises its creators made, or where the firm clearing the trades fails to correctly follow the algorithmic parameters. Our attorneys are very familiar with algorithmic trading and the perils it can have for investors and proprietors alike. We can help with these complex issues to determine if there is a viable case and who may be responsible for the losses.

Hedge funds are pools of capital from various investors, used by traders (also called Portfolio Managers) to generate profits in financial markets. However, despite these traders’ sophistication and experience in making investment decisions, they are still ultimately reliant upon a brokerage firm to hold the assets, clear trades, and manage margin balances. Where the firm fails to fulfill those duties, the Hedge Fund itself may have a claim. Our firm has represented numerous hedge funds in disputes with brokerage firms who wrongfully handled the business of the hedge fund, causing the fund and its investors significant losses.