Breach of Contract?

[quaid]

Hi all.
Unsure if this is the correct sub-forum.

I had a few positions open with a CFD provider around half of them hedged against each other - so no additional margin requirement. There was a margin call and I couldn't add money. The company started closing positions that realised profits/losses but didn't change margin requirements. According to the contract they are allowed the following in case margin falls below requirement:

"close, part-close or amend all or any of your Transactions at a Closing Level based on the then prevailing quotations or prices in the relevant markets or, if none, at such levels as we consider fair and reasonable and/or delete or place any Order on your account with the aim of reducing your exposure and the level of Margin or other funds owed by you to us."

This particular aspect "with the aim of reducing your exposure and the level of Margin" suggests that positions will be closed with some sensibility/intelligence with the sole aim of reducing exposure/level of margin. However, positions are actually closed in a pre-determined automated manner without regard to reducing exposure/margin (realizing profit/loss).

In case my case they ended up closing 7 of 10 open positions, when closing a maximum of 2 positions would have met margin requirements.

When questioned the following is their response:

"we operate a “first in, first out” (FiFo) policy where the oldest positions are closed first. You further responded by stating that you were unable to find a details of this policy in the in the links provided.
I concur that this “FiFo” policy is not displayed on our website. As explained in my response to you, we normally utilise a “FiFo” policy to close positions on clients accounts where margin breaches occur."

It seems, the above response is completely different from what is claimed in their agreement. It is actually a established procedure in the company which is contrary to the agreement term. According to the term high-lighted, they have the right to close positions to specifically reduce exposure/level of margin - not if it does not reduce exposure/margin level.

Is my understanding correct about the contract term? Is this a potential breach of contract? And a loss incurred?

 

[tomorton]

Hi quaid. This is an interesting question. I can only remember once having an issue with my broker due to margin requirements. On that occasion I got a margin call recommending I deposit more money into the account. Instead of which I just closed one or two losing positions and that was the end of it. Margin calls are not mandatory - this was good customer service as they were within their T&C's not to even try to contact me.

In their T&C's they don't declare a specific system they use when closing positions so they can close open trades in any order. And they do say that they retain the right to close all trades as they cannot select which trades to close as they're not trading on the client's behalf but in an ‘execution only’ capacity. So there's no way for me to assert that they closed the wrong trades and caused me some losses, as they could simply say, well, we can close all the trades if we want anyway and if you don't like that T&C you didn't have to open the account.

As I understand it a clear breach of T&C's is a breach of contract. If a T&C is unfair or unreasonable (including unlawful), that T&C would probably not survive in a legal argument against the broker. Where a T&C is fair and reasonable but it is so vague or ambiguous that the client is disadvantaged, any judgement would normally be on the client's side as the client did not write the contract.

Legal advice is available of course, but if my broker did what your broker has done I would not feel able to take it any further. But I would mark it down as bad customer service: I might even close the account.

 

[quaid]

Hi tomorton.
Thanks for taking the time to respond. I was traveling hence the delay in responding. I think if it was a small-ish loss, I would probably move on too. But we're talking around £8,000 - I am considering options.

 

[tomorton]

Hi tomorton.
Thanks for taking the time to respond. I was traveling hence the delay in responding. I think if it was a small-ish loss, I would probably move on too. But we're talking around £8,000 - I am considering options.

No worries at all.

As this is such a large amount I am sure anyone would consider pushing it further too, it's worth the argument.

It really is arrogant for the broker to take the view that all positions are forfeited simply because one or some breached margin requirements. I think they might be persuaded to regard each position as a separate legal agreement, they are obviously separate transactions so there's no rational reason to treat one which breaches the broker's condtions the same as another which doesn't.

Assuming the breach of margin was unintentional and not a plan or a habitual thng, it would be like walking out of a supermarket with 50 items in your trolley - 49 of them you have paid for at the check-out but one you forgot. So, would the supermarket ask the police to charge you with 50 thefts or one? One obviously. Would you have to surrender the 49 items you paid for? No, of course not, they were each legal transactions: even if they re-funded the money you had paid, you still got nuthin to eat tonight.

A good broker could re-instate the positions they closed without just cause. If not, they're a poor broker, who cocked up twice by closing your positions and then failing to take responsibility. Nobody should continue to trade with a broker who has a record as a serial cocker-upper.