Investment Brokerages: Five Tips For Tackling A Bad Fill Price From Your Broker
Friday, May 1, 2009
by Marc Lichtenfeld, Senior Analyst, Smart Profits Report
If you’re an active investor, you’ve no doubt had your fair share of trade executions that are, shall we say, less than optimal.
Another way of saying it is, “You were screwed.”
Bad executions are a part of trading. Sometimes you’re looking right at the offer price and inexplicably get filled at a higher buy price. Other times, you get a sell executed lower than the bid. It can be frustrating and costly.
Most people simply take a bad fill price and move on to the next trade. It’s something that I’ve learned to live with.
But occasionally I get a trade filled at such a bad price that I can’t take it lying down. However, instead of taking my wrath out on my loved ones or the family pet, my broker becomes the focal point of my anger.
Here’s how to combat the bad broker-bad trade…
How To Get Compensated for Bad Execution
I use one of the online discount brokers. And because I’ve been a good customer for years, if I ever have any complaints, the company usually looks at my account and sees that I’m someone they’d like to appease, if possible.
For example, when I’ve received fill prices that I believe are unfair, I call the 1-800 number and explain the situation.
The representative will then take a look at the time and sales history, showing exactly what the bid and ask prices were at the time the order was routed.
However, customer service representatives are usually powerless to do anything about the execution once it’s happened. And 99 times out of 100, though, they’ll insist it’s a valid trade.
Possible reasons for a bad fill include the brokerages quotes not updating in time - and even a slight delay could cause the discrepancy.
However, brokers have disclosure statements saying that they’re not responsible for bad quotes, since they obtain them from a third party provider.
So you’re stuck, right? Perhaps not…
Go For A Goodwill Gesture
In this case, what I always do is complain a little more (just so they know how unhappy I am as a valued customer) and then ask for a few free commissions as a goodwill gesture.
While this might not make up the difference between the price you received and what you thought you should, the bottom line is that the trade isn’t going to get reversed. So there’s a good chance that the rep will be happy to give you a few free commissions.
If they don’t, demand to speak to a supervisor.
But what about when you get a problem that is so severe that a few free commissions won’t be satisfactory?
Fight For Your Rights With Egregious Errors
When I was on a proprietary trading desk, we all hated the market makers - the guys who set the bid and ask prices on the Nasdaq.
They seemed to constantly pull shenanigans, such as not honoring their prices, or filling orders below the bid or above the ask. There were days where if a market maker ever walked into our office, I’m certain he would have been beaten up!
I recently encountered a situation where a market maker clearly didn’t update his system when the market opened and I was given a terrible fill price as a result.
One second later, the quotes were in line with where it should have been trading, but I was given the lower price on the open. This was a problem, as it triggered my stop-loss - something that wouldn’t have happened if the quote was accurate when the market opened.
Here’s how I tackled the situation…
~ I called my broker to complain. They checked and said it was a valid quote (surprise, surprise). I escalated it to a supervisor, who said the same thing.
~ Because it was the market maker’s fault, not the broker’s, I demanded that they fight for me and get the market maker to break (reverse) the trade because the stock had moved considerably since then. The person I was speaking to refused.
~ I asked for the trading inquiry department. Another employee told me the same thing. Finally, the fourth person I spoke to called the market maker and got the trade broken.
The moral of the story is, if you know you’re right and you’ve been treated unfairly, fight for it. In this case, it saved me hundreds of dollars.
So here are some tips for dealing with your broker and getting compensated for errors caused by poor execution…
Five Tips For Tackling Your Broker’s Bad Execution
- Don’t be a constant complainer: Be selective about cases where you got poor service, otherwise your broker will think you cry wolf and stop giving you freebies. They may not even try very hard to solve your problem when a real one arises.
- Be calm and professional: Explain your issue in a succinct and courteous manner. If you yell and scream, use profanity or act in any other undignified way, the chances of getting what you want are much lower. But if you’re rational, it makes you sound like you know what you’re talking about.
- Tell the broker what you want: After you’ve explained the problem, if they can’t fix it, inform them how you wish to be compensated. Usually free commissions are the answer, since they won’t put money back into your account.
- Demand to speak to a supervisor: If you can’t get a situation resolved to your satisfaction initially, keep going up the chain of command.
- Write to the CEO: In several instances where I’ve received an unsatisfactory outcome, I’ve written to/e-mailed the brokerage’s CEO directly. In every instance, I got a response very quickly and received some resolution to my problem.
In sum, you don’t have to take mistreatment from a broker or market maker lying down. By standing up for yourself after a bad fill price, you could save yourself thousands over the life of your portfolio.
Have a great weekend.
Marc Lichtenfeld
P.S. For more on this subject, check out our free section on investment brokers and commissions on our Smart Profits Report website.
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How To Effectively Handle Any Broker
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