UNDERSTANDING SOME GENERAL RISKS OF TRADING FUTURES
OPENING PRICE GAPS
A price gap is a break between prices on a chart that occurs when the price of a symbol makes a sharp move up or down with no trading occurring between. It is possible that GAP can occur over a position exit stop which would mean that the exit price of a position could be much less favorable than the stop value resulting in additional "slippage" costs.
Typically these gaps occur on the open after markets close for the hour break each day or when markets open at 4:00 pm MST on Sunday after closing on Friday afternoon for the weekend. If some material news event were to happen while the market was closed, it could cause a spike in price when the market re-opens.
Performance Viewer historical backtests account for these open price gaps, and they are considered a normal risk when trading anything from stocks and bonds to ETF's or futures. Gaps are usually minimal, but they are a risk.
A lock limit occurs when the trading price of a futures contract arrives at the exchanges predetermined limit price. At the lock limit, trades above or below the lock price are not executed. These days, only agricultural commodities (wheat, soy, soy meal, and corn) observe lock limit rules. Lock limits can occur for multiple successive days, and could result in losses beyond the position exit stop price.
An example of lock limit would be as follows: Imagine that corn settled at $4.50 the day before a major USDA report. The report was very bullish and Corn immediately moves to the limit up value. Corn would stop trading at $4.90. The exchange will not allow any new orders to buy corn over $4.90. Chances are that corn will not trade for the remainder of the session. After the market closes, if corn settles at limit up prices, the new settlement price will be $4.90. When the next trading session opens, corn will be able to trade between $5.30 ($4.90 + $0.40) and $4.50 ($4.90 -$0.40). If the market still prices corn at $5.00 at the open, it will open up at $5.00 and traders will be able to buy and sell again.
Lock limits are very rare these days.
If you are Canadian, your Interactive Brokers account is CIPF insured for up to $1,000,000. This government insurance is not available for American customers.
MF Global futurage brokerage firm declared bankruptcy on October 31, 2011, and the company was liquidated. Losses incurred by customers of MF Global stood at $1.6 billion. In January 2013, a judge approved a settlement that would return 93 percent of customers' investments, with the prospect of additional payouts from the company's general estate. In December 2014, MF Global Holdings settled a U.S. government lawsuit, agreeing to pay $1.2 billion in restitution and a $100 million fine for customer losses tied to the company’s 2011 collapse.
MALICIOUS LOG IN
If someone were to obtain your Interactive Brokers account name and password, they would not be able to log into your account via the Interactive brokers web site because access requires the IBKR Mobile security device approval. However, if someone were to obtain your AlgoLab account port number, and password, they could use the AgoLab dashboard to change your trading settings - the most malicious activity might be increasing your capital or risk so that when orders are placed, AlgoLab would be placing orders for far more contracts that normal. Your Interactive Brokers account will automatically disallow orders over a certain limit, as will your AlgoLab software. Also, you will get a confirmation email that someone has used your port # and password along with details of the dashboard change. If you didn't make the change, then you can notify us, and we can reverse any orders that may have gone through, then change your credentials.
If someone were to obtain your Interactive Brokers account name and password, and attempt to log into a trading platform, theoretically they would be able to place trades in your account. However, each time they made a malicious attempt to log in, AlgoLab would prevent the log in because it has already established a connection to your IB account.
AlgoLab IS NOT AN INVESTMENT ADVISOR, TRADING FUTURES HAS RISK & THE RISK OF BACKTESTING
theAlgoLab.com software provides template trading systems that can be customized by the end user. theAlgoLab.com company or it's principals does not provide specific trading advice, and therefore is not required to register with the NFA as a CTA. If you require personalized professional trading / investing advice, please consult with a licensed broker/CTA. Actual past performance, or simulated past performance does not guarantee future results. Trading futures assumes a high level of risk. theALgoLab.com and it's principals are not registered as investment advisors. Consult with a CPA or financial advisor, or broker to ensure that your strategy utilized is suitable for your investment profile before trading in an actual funded live brokerage account.
Some trading performance results posted at this web site are from back-testing systems during the dates indicated, using specific settings, from a basket of different futures contracts. Some performance results shown here benefit from hind-sight. Some results shown result not from actual funded trading accounts, but from simulated accounts which have certain limitations. Actual results will differ given that simulated results could under, or over compensate the impact of certain market conditions. Actual draw downs could exceed back-testing draw downs when traded on actual trading accounts. While back-tested results might show profitable returns, once commission, slippage, and fees are considered, actual returns will vary.
REQUIRED DISCLAIMER: Commodity Futures Trading Commission Futures trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website or on any reports. The past performance of any trading system or methodology is not necessarily indicative of future results.
CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under — or over — compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.