Throwaway account since I’m giving actual dollar values here.
I do data-driven short-term trading via a homegrown system, and I got burned by brokerage behavior I hadn’t known was possible.
So, last month my system told me to short INNT from to June 18th to July 16th. I opened a short position on 1420 shares (~$15k at about $10.55 per share) on 6/18. Unfortunately, INNT saw a massive spike (>100%) not long after I opened my position, presumably triggered by it getting added to the Russell 3000, 2000, and Microcap indexes. Not great news, but I didn’t panic and close the position — I would stick it out through the frenzy out and follow the plan.
On July 11th, I got a surprise — my brokerage had forcibly closed out my position, buying back the shares at a cost of about $35k. It turns out that they had to execute a “buy-in” with no notice since they suddenly found themselves no longer able to lend me the INNT shares. Presumably, other clients had sold their INNT shares, and the brokerage now didn’t have enough shares for me to continue shorting.
Anyway, July 16th arrives (the date on which I was to close the position), and the share price drops to $8.08 per share. So, had that forced buy-in not occurred, I’d have made $3.5k rather than lost $20k.
Lesson learned: Your brokerage can close your short position without any notice, regardless of your account’s standing. (And yes, I could have limited the loss via options, but that’s not practical for my situation)
This was a buy-in / recall, not a margin call. Here’s Interactive Brokers’ info on buy-ins:
Disclaimer: Consult your financial professional before making any investment decision.