FYERS has found itself at the centre of a controversy surrounding a freak trade incident in the BSE Sensex 67000CE on Friday, 8 September 2023. False and misleading information has been circulating regarding this event, leading to confusion and baseless accusations against us. This post is to set the record straight and inform everyone of the actual circumstances surrounding the incident.
The Freak Trade Incident
The controversy concerns a trade from one of our clients, which resulted in significant financial losses for him. This client falsely claims to his followers, the general public and the media (link to the article) that FYERS is responsible for his losses due to a supposed flaw in our trading platform. However, clarifying that the fault lies with the client, not FYERS, is essential as we did in this article.
Not a Fat Finger Trade
A "fat finger trade" is an accidental error when a trader enters an incorrect order, causing sudden and extreme market impact. In contrast, a "large trade with multiple small orders" is usually a deliberate strategy to gradually accumulate or dispose of a significant position, minimizing impact cost. In this case, the client manually placed over 300 orders to complete the trade entry. By definition, it cannot be considered a fat finger trade.
Client Error: SL-M vs. SL-L Orders
The crux of the issue lies in the type of orders placed by the client. Instead of using a Stop-Limit (SL-L) order type, the client has placed Stop Loss Market (SL-M) orders for an order quantity of over 2,80,000 (28k+ lots). These two order types work differently and have distinct implications on the trading outcome.
A Stop Loss Limit (SL-L) Order allows the trader to specify both a stop price (Trigger) and a limit price. When the stock or option reaches the stop price, it becomes a limit order to buy or sell at the limit price or better. This provides a degree of control over the execution price.
On the other hand, a Stop-Market (SL-M) order becomes a market order when the stop price is triggered. In volatile markets or with illiquid instruments, such as out-of-the-money (OTM) options contracts, market orders can result in executions at prices massively different from the expected stop price.
Illiquidity in OTM Options Contracts
It is important to note that the illiquidity of OTM options contracts can lead to what are often referred to as "freak trades." These trades occur at prices far from the prevailing market price due to a lack of liquidity because of market orders and SL-M orders. When a market order is triggered in such conditions, it can result in a substantial difference between the expected execution price and the actual execution price. Such outcomes can also result from "stop-loss hunting" strategies by HFT firms or accidental beneficiaries who have placed extreme bids/offers during such times due to their own trading expectations. Other than that, such bizarre transactions are often identified with tax evasion, among other notorious violations. It is popularly known as "wash trading." Typically, the beneficial owner undertakes a pre-meditated trade in an illiquid instrument from both sides (Buy & Sell) to incur losses in one tax jurisdiction where taxes are higher and simultaneously register profits in another jurisdiction where taxes are lower, thereby attempting to gain from illegal tax arbitrage.
Our Stand
In this case, we want to make it unequivocally clear that FYERS is not responsible for the client's losses. The client's choice to place Stop-Market orders and the inherent risks associated with illiquid OTM options contracts led to the unexpected execution price. A trader must know the potential dangers of trading in futures and options before embarking on the trading journey. It's akin to purchasing a fancy sports car without the proper driving skills. Then, the driver accidentally crashes the car due to inexperience or a lack of caution. Instead of acknowledging his ignorance, he blames the car dealer for selling him a 'faulty' vehicle, especially after driving the vehicle for over 6 months.
Additional Clarifications:
Execution Price: Another piece of misinformation is that the trade was executed at 209. This is factually incorrect. While a portion of the SL-M buy order which was triggered at 5 was executed at 209 and various other prices, the average buy price was 37 and not 209 as falsely claimed.
SL-M Orders: To reduce the risk of freak trades, in 2021, NSE disabled SL-M orders as mentioned in this notice. At the time, NSE was the only exchange that had index options. However, other exchanges have yet to take similar measures. As a brokerage, we provided SL-M access in BSE so clients can use the feature responsibly.
Trade Information: The client has claimed inconsistency in how the FYERS mobile App doesn't show the trade details. This is factually incorrect, too. Any trade's average buy/sell price is displayed under the "Positions" tab. The order details are available in the "Orders" tab and are optimized for a mobile user experience. The traded price is available upon clicking on the additional order details. Clients can also access the detailed trade book from 'FYERS Web' on T day and the 'My Account' section under Bills & Contracts after the scheduled back-end operations daily. Additionally, we send contract notes to clients' registered email per the regulatory requirements.
Client's Responsibility: The order was placed by the client, not the broker. The order was also executed without any errors. The client's mistake and losses incurred cannot be redeemed by blaming the broker.
Client's Credibility: The fact that the client is instigating his social media followers to disrepute FYERS unless we refund the loss, and to do so by misrepresenting facts calls to question his credibility. As a brokerage, FYERS keeps a record of all the order and trade logs, and in the interest of not disclosing confidential information, we shall not. But we can prove our stand if and when required by the exchange/s, regulator, or law enforcement agencies.
Responsibility as a Finfluencer:
Finfluencers with large followings should be conscientious about giving their followers truthful and reliable information rather than orchestrating propaganda to achieve their agenda (such as a refund of losses). The followers of such persons should be well aware of the eventual consequences of putting too much faith in influencers who spread misinformation, make lofty claims, and show their luxury purchases don't vindicate the influencer's trading performance. People should be extra cautious of anyone's claims if they refuse to provide their Verified Profit and Loss (P&L) statements. In the financial world, transparency and credibility are paramount. Responsible influencers who offer trading advice or claim to have earned their riches by trading should be willing to demonstrate their actual trading results through verified documentation rather than relying solely on an image projected through social media. Remember, trading and investing involve real risks, and it's important to trust individuals who are honest about their performance and willing to provide evidence to back their claims.
Conclusion
We hope this clarification provides a better understanding of the situation. Our trading platform contained no inherent flaws that led to the issue reported by the client. We strongly encourage all traders to educate themselves on the different types of orders and their implications in various market conditions. Do exercise extra caution and diligence when trading illiquid instruments, as they can be more susceptible to extreme price movements.
FYERS remains committed to providing a transparent and reliable trading environment for all our clients. We appreciate your trust in our services and look forward to continuing to serve you with the utmost integrity.