Wronged by Irish futures exchange Intrade

[Slaughtermeyer]

I have grievances against the unregulated Irish futures exchange Intrade (www.intrade.com). I am a US citizen residing in the USA. Here is a letter that I sent to Intrade outlining my grievances:

Dear Mr. Wolfenden,

For your reference here is a summary of my grievances against Intrade and how those grievances came into being. It should not be construed as a complete enumeration of my grievances, I may wish to pursue legal remedies for other grievances which I do not mention in this message.

In 2006 I became convinced that betting on Hillary Clinton to win the Democratic party nomination was an extremely good bet and accumulated a substantial long position in that contract by the summer of 2007. I purchased most of these contracts in the mid-forties and by summer the contract was trading in the high sixties. Convinced that short selling the Barack contract was also a good bet, I also accumulated a substantial short position in that contract while it was trading in the thirties and twenties. This contract also eventually experienced a significant price move in my favor.

I also accumulated a substantial short position in the Al Gore presidential and nomination contracts, convinced that Gore had a near zero chance of getting the nomination. I also had a smaller short position in Edwards contracts.

In July 2007, less than one month prior to the first margin rate change, the exchange made known the schedule of margin rate changes. Bettors were notified that in the month of August in the year 2007 the amount of margin would triple to 1.50 per contract. At the same time, they were informed that margin would increase yet again to 2.50 per contract in September. In October the margin requirement would increase drastically to 100% of potential loss which depending on the market price of the contract could mean close to a total of 10.00 needed per contract. If a bettor could not come up with the additional margin, Intrade reserved the right to itself liquidate that bettor's holdings to the point where margin was sufficient.


After the margin rate changes were publicised, I realized that it would be prudent to start liquidating some of my positions in anticipation of the massive jump in margin requirements that would happen in October, because I was not sure that I would have access to sufficient funds available for the October margin increase if I kept all of my positions open. It's especially important to keep in mind that as my Barack position was gradually liquidated, I saw my margin requirements gradually decrease, so therefore I continued liquidating the contracts although I would have preferred to hold on to them in anticipation of Barack's loss.

I decided to retain as much of my short Al Gore position as I could which I considered to be virtually a sure thing. When the September margin increase became effective, my available balance turned negative. Because funds which I sent to Intrade did not arrive in time to completely eliminate the negative balance, my account had a negative balance for most of September. However, whenever I liquidated my short Obama contracts I saw my negative balance change toward the positive direction, so I continued to liquidate my position to the point where I had only a relatively small position in that contract at the beginning of October.

After the drastic October margin requirement increase, the negative available balance became much more substantial. I tried to continue to liquidate my remaining short Obama position but to my great astonishment I found that I was no longer able to buy Obama contracts, but was able at that point to actually short sell them! Prior to the October margin change it was exactly the opposite situation, I was able to only buy but not short sell them, even though I had a negative available balance both in Septimber and October.

I eventually came to the conclusion that I was able to short sell the Barack Obama contracts in October because by doing so I actually reduced the maximum loss and risk potential in my account because it would be impossible for both Barack and Gore to win the nomination, and that the short Barack and Gore positions mutually hedge the risk against each other. I concluded that I was able to buy Obama contracts in September but not short them because of a flaw in the margin software which did not take into account the risk reducing effect of having mutually supporting short positions. This conclusion was reinforced when I received an email from Intrade stating that the margin calculation program used by Intrade takes into account the risk reducing effect of mutually hedged short positions only when margin requirements are set at 100% worst case loss. Prior to the date of worst case loss margin requirement, the margin software did not take into account the risk reducing effect of having mutually hedged positions, but instead treated hedging as if it actually added to risk as reflected in the available balance! But Intrade denied that there is anything wrong, improper, or deceptive about having this kind of margin calculation!

I am very disappointed in the existence of this problem at Intrade. Had I known that I would actually increase the risk and margin requirements in October by liquidating my short position in Barack Obama, I would not have done so. I also believes that I should have been able to short additional contracts of Barack in order to hedge against my Gore position while the lesser margin requirements were in place, which would have happened at a price of around 30 and therefore would have resulted in a substantial profit for me when the price of Barack contracts tumbled. I also would have shorted additional Edwards contracts and not liquidated my existing position, which likewise would have reduced my risk and resulted in additional value to my account based on the price movement of that contract. If I had kept my short positions in Obama that I did liquidate at a relatively unfavorable price under the false impression that it was reducing my risk, my account would show substantially more of a net value at the present moment for that reason too.

My understanding is that Intrade's position is that it does not consider itself liable for any losses and potential lost profits that I experienced as a result of the way its margin software operates, and that if I not deposit additional margin to my account to eliminate the negative balance by the end of today, it retains the right to close my account and liquidate positions sufficient to eliminate the negative available balance. I have proposed that this matter be brought to an independent betting arbitration organization, but that proposal was rejected by Intrade.

Very truly yours,

XXXXXXX

[msg]

Based on what you say here, you could file suit against them (or at least threaten to do so) in small claims court or in regular court; filing in small claims court is easier and requires no attorney...you could try to collect all of the costs and damages that you suffered due to their behavior...