‘The Reddit/GameStop stock debacle cost me £170,000’

I lost around £170,000 on GameStop – thanks to Reddit and the incompetence of a stockbroker

QAs an experienced investor, I recently became heavily invested in a short position in GameStop, the American consumer electronics store, which was doing terribly as a business. But then, a few weeks back, when things started kicking off on Reddit and people started piling into the stock to artificially boost its value, I started rapidly losing money. I was down around £170,000, and my account fell into negative equity.

I told my broker, Interactive Brokers, that I wanted to close out my position as quickly as possible.

On Jan 27, GameStop shares opened in the premarket at 9am UK time at $240 (£172), and then traded between $ 183 and $ 364 until the New York Stock Exchange opened.

Interactive Brokers could and arguably should have closed out my position then, as I was already in trouble. However, it did nothing. At around 2pm Interactive Brokers left a message on my voicemail telling me I was in negative equity. The agent said they needed to confirm my plan of action to correct the negative position, urging me to call back. They explained that my positions would be automatically liquidated if I did not provide an indication of what I was going to do when the market opened at 2.30pm.

I did not call back. On hearing this message I naturally assumed that it had matters in hand and would automatically liquidate my positions as stated.

GameStop shares opened for trading on the New York Stock Exchange at $293 and then traded down to $250. I logged into my account to see at what price my positions had been closed. My positions were still showing as open, so I placed an order to buy GameStop at the then price of $275. This was rejected and the message was that my account was in liquidation.

They had stopped me from closing the position myself, so I presumed it had already been done, and that the trades were being processed. I tried to call Interactive Brokers, but I could not get through. I tried its online live chat service but waited over two hours before getting an automatic response telling me to send a written message.

Eventually my account was liquidated at 6.49pm. This was more than 10 hours after my account had exceeded margin requirements, and more than four hours after the agent had left a message to say that I had negative excess liquidity and that my account would be liquidated within 10 minutes of the opening.

I think this is unacceptable. I take full responsibility for my poor investment choice and can accept most of the losses as my own doing. But I think Interactive Brokers should bear the cost of their delay as the share price spiralled, and I was left losing money rapidly and helpless to stop it.

I know I’ve made a poor investment decision, but the broker had a responsibility to act decisively and quickly when margin requirements are violated. It failed to act. I am not looking for sympathy here as I am by no means destitute, but I lost my job at the end of last year and have taken early retirement. I don’t need to tell you how big a blow this is to my plans.

– Anon A

You were caught in this infamous battle between an army of amateur investors and multi- billion- pound hedge funds, the likes of which have never been seen before in trading history. Organised via a thread on social media website, Reddit, and acting in unison, these investors delivered a painful kicking to the short-sellers who bet against them, including yourself.

You have no problem in accepting responsibility for the bulk of your losses here, and you have made it clear that you are not looking for sympathy regarding your investment decision.

This is just as well, as you would not find any here. However, you feel this broker has let you down by promising to take action to limit your losses, which it then apparently failed to do. On this point I am inclined to agree with you. As a result of this, you estimate your negative equity could be as much as £36,000 larger than it should be, depending on how you calculate the loss.

I was only too happy to raise your complaint with Interactive Brokers and ask it to reduce your debt, on grounds that you were made a false promise which had cost you dearly. When you signed up to this broker you agreed to pay for a reliable and efficient service, which you feel has let you down at the very moment you needed it most.

Interactive Brokers said it was investigating your complaint, and it took weeks to come back with anything much to say. Finally, it told me it would be contacting you directly, and refused to discuss details of your case with me as it “wasn’t company policy” to do so. I told them this was highly unusual behaviour for a reputable company, especially as you had given me explicit permission to discuss your account with it.

I felt it was trying to distance me from the case, so when Interactive Brokers said it would be contacting you “shortly” to discuss a resolution, I prepared you for the deployment of a nondisclosure agreement. Happily, one never materialised, but a settlement

I know I made a poor decision but the broker had a responsibility to act fast on my behalf

offer for £20,000 did, and you accepted it on the spot. This was based on the price you would have sold at if the position had been closed at the time the agent had said it would be in his phone message, as opposed to what it was when you actually traded.

You felt this was probably about right, under the circumstances. You may still be in a financial hole, but at least now it is a little shallower than before. I have a feeling you may take a more cautious approach to shorting stocks in future. I wish you all the best in your early retirement.

It’s goodbye for now, but I’ll be back

Dear Readers, I am delighted to share with you some very happy personal news, which is that

I am expecting a baby. As such, this weekend’s columns will be my last before I go on maternity leave. I am excited to begin family life with my husband and our new arrival.

Typing this, it feels strange to think I won’t be hearing from you or dealing with your problems over the coming months. Being pregnant during the pandemic has, at times, been a scary and isolating experience, but hearing from you, our readers, has provided me with something of a lifeline and a real sense of purpose. So a big thank you for reading, writing in, and just being all round splendid company.

I know many of you have also found these pages a comfort during tough times, but fear not, as despite my departure this column is very much here to stay. In fact, my replacement is already in place, and has been solving your problems behind the scenes.

I’m pleased to be leaving you in the caring and capable hands of our new consumer champion, Sally Hamilton. Sally is an award-winning journalist with decades of experience in personal finance. She is raring to go with solving more of your problems in my absence. You can find her contact details in the sidebar to the left.

So, as I sail off into the land of sleepless nights and dirty nappies, it’s goodbye for now. But if companies think they can breathe a sigh of relief while I’m gone, they can think again. Sally will be on hand and, of course, I’ll be watching. So please do make sure you keep reading and, upon my return, I’ll be ready to fight injustices with more ferocity than ever. Until then.