friend of mine made a purchase on Friday of Vanguand small cap fund, issue is he accidentally entered by shares instead of dollar amount which (wait for it) executed a close to $3M purchase on margin. The sale has not fully settled and the market was closed when he realized his mistake.
he is understandably freaking out and can’t get ahold of his FA or anyone at vanguard.
the main issue is what his exit strategy should be. And what is the most likely market open scenario. Also will a $3m sell order at open potentially move the market to affect the sale in anyway? is there a world where he should wait mid morning or try to open any hedges?
he hopes to get ahold of his independent financial advisor tomorrow to talk him through his options but he is understandably a bit freaked out. Right now the implied open has him at an estimated $75k loss.
any thoughts, ideas, advice?
Accidentally made a major margin market order on Friday – need advice on strategy to exit at market open.
byu/jjjaaammm inpersonalfinance
Posted by jjjaaammm
11 Comments
Sell on open Tuesday, will have a cost associated though
FWIW: if this were me then I’ll breathe, avoid market orders at the open(ideally wait for 5-10mins), use limits, and prioritize getting clarity from Vanguard on the margin status before doing anything exotic.
If he did this when it was closed and the shares were not on the 24hour line up, then he can cancel it. If it went through, then sell it immediately on Tuesday morning.
Do not sell at the open with a market order, otherwise your $75k potential loss can quickly become a $150k loss.
At the very least, set a limit order, and readjust as needed, and usually wait a few minutes (between 5 to 15) to let the market settle. Unclear if Tuesday will be red at the open, but it could bounce back a bit (even if it drops further later).
When you say small cap fund, do you mean a mutual fund? I didn’t think those could even be purchased on margin.
I would tell him to call vanguard’s support line (I assume they have one?) first thing Monday morning, before the market opens, and see what they say. I’d hate to see your friend make things worse by accident by acting without having all the information.
With vanguard the order would not have gone through, it’s a pending order. He will get the open price on Monday what a genius. If it had been a finalized after hours trade it will not show pending it would show as a position and would consequently show a p/L based on the last closing price of the after hours trade. Also, what a dumbass.
Fyi, Vanguard absolutely sucks when it coming to correcting things like this. A lot of ethos people think Vanguard has died with John Bogle years ago. Better than most others, but good luck to OP’s friend.
I don’t know for sure, but I think the futures markets are open Sunday evening despite the holiday. He could sell short the /RTY (small cap index) to limit the damage in case small caps sell off by Tuesday, assuming he has any margin left.
If you have access to derivatives – you can hedge partially the position on Monday evening. Open SPX position during evening session – either with futures or with options.
If he is very worried about it, I would probably do it to cover maybe 50% of the position. Account for beta. Calculate ten times before entering the position – the level of risk is even higher compared to $3m position if you do it wrong
I would just piece out the order 1000 shares at a time using limit orders, its not that big of a position to work out of relative to how much liquidity there is in the market
He made the trade during market open on Friday and didn’t realize it until after the close on Friday? You get what you get for being that careless. Hedge it out before the open or sell it off piecemeal, there’s no magic bullet.