A day trader who bought hundreds of oil contracts was told he owed $9 million after a trading platform issue meant it failed to show oil's historic plunge below $0

• A day trader who bought hundreds of oil futures contracts during its historic price crash last month was told he owed $9 million after a technology issue prevented his trading platform from displaying negative oil prices.
• On April 20, Syed Shah, a day trader in Canada, bought 212 futures contracts for what he thought was one cent each, not knowing that oil was actually trading at -$3.70 per barrel at the time, according to a Bloomberg report.
• The platform he used, Interactive Brokers, could not display negative prices, so Shah and other traders were oblivious to the huge drop.
• "It's a $113 million mistake on our part," Thomas Peterffy, founder and chairman of Interactive Brokers told Bloomberg in an interview.
• He added that customers who suffered losses as a result of the issue will get their money back.
• Visit Business Insider's homepage for more stories.

A day trader who bought hundreds of oil futures contracts during its historic price crash last month was told he owed $9 million after a technology issue prevented his trading platform from displaying negative oil prices, according to a report from Bloomberg.

The record-setting oil crash last month led to traders using Connecticut-based brokerage firm Interactive Brokers being told of huge losses incurred when the commodity went below zero, despite not knowing it was in negative territory.

When crude oil prices for May contracts plunged into negative territory for the first time in history on April 20, the firm's software was unable to display the unprecedented move below zero, leading traders using the platform to major losses.

After the crash — which sent oil to a record low of -$37 — Syed Shah, a 30-year-old day trader from Toronto, received a traumatic notification from Interactive Brokers saying he owed the firm a whopping $9 million.

He had started the day with $77,000 in his account, Bloomberg reported.

As oil crashed into negative territory, Shah bought 212 oil futures contracts for what he thought was one cent per barrel, not realising that oil was actually trading at negative $3.70 per barrel.

Shah had no idea that oil's dip into negative pricing had happened, and he was unable to see the price in real-time as Interactive Brokers' system was unable to display a price below zero.

"I was in shock," Shah told Bloomberg. "I felt like everything was going to be taken from me, all my assets." Shah told Bloomberg he didn't sleep for three days after the incident.

Read More: 'We'll see the true financial carnage come': A 47-year market veteran warns the fallout from the coronavirus is only halfway finished — and says it'll take decades for the market to carve out new highs

Interactive Brokers' CEO says the negative move exposed issues

Thomas Peterffy, founder and chairman of Interactive Brokers, said that oil's journey into negative territory revealed existing bugs in the company's software.

"It's a $113 million mistake on our part," the 75-year-old billionaire told Bloomberg in an interview. Since the interview, that estimate has been revised down to $109 million, Bloomberg said.

"We will rebate from our own funds to our customers who were locked in with a long position during the time the price was negative any losses they suffered below zero."

In another incident thousands of miles away in Europe, Interactive Brokers customer Manfred Koller faced a similar situation to Shah, according to the report.

Koller, who lives near Frankfurt, Germany, reportedly purchased oil contracts for his friends at $11 and between $4 and $5 that same day on the Interactive Brokers platform. His trading screen froze just after 2.00 p.m. ET.

"The price feed went black, there were no bids or offers anymore," Koller told Bloomberg in an interview. But according to his trading account, he had nothing to worry about since trading had closed for the day.

Later on, however, Koller received a notification from the brokerage that he owed $110,000, he told Bloomberg.

Read More: A Wall Street expert lays out how the stock market's 'downright terrifying' surge within this crisis may be laying the groundwork for another 32% crash

The fact that derivatives exchange CME Group's benchmark oil contracts could go negative was widely known. The platform, where the trading took place, had alerted all its member firms that they should test their systems for negative pricing.

The alert said: "If major energy prices continue to fall towards zero in the coming months, CME Clearing has a tested plan to support the possibility of a negative options underlying and enable markets to continue to function normally."

While Peterffy acknowledged that Interactive Brokers received this notification, he told Bloomberg his firm's software needed more time to upgrade.

"Five days, including the weekend, with the coronavirus going on and a complex system where we have to make many changes, was not a sufficient amount of time," he said.

Representatives of ICE and CFTC did not immediately respond to a request for comment by Markets Insider.

You can read the full story of Interactive Brokers' problems at Bloomberg.

Read the original article on Business Insider