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How I Lost Over $60,000 in Less Than 24 Hours at Vanguard

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Tom Talbott
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How I Lost Over $60,000 in Less Than 24 Hours at Vanguard  Reply with quote  

I thought the readers of this forum might find it instructive to hear how, even though I follow religiously the advice not to invest anything in bitcoin that I cannot afford to lose, I nonetheless managed to lose more than $60,000 in my retirement account at Vanguard in less than 24 hours. This explanation of my experience will be word for word as accurate as I can make it.

A while ago, I bought three shares of GBTC for less than $3,000; then, two or three days later, I sold these three shares for more than $4,000 with more than a $1,000 gain. I thought, “Gee, this is kind of fun to play with using play money.” So a while later I purchased a single share and sold it the next day for a measly gain of $200.

Now here is where the story gets crazy. On Thursday, December 21st, I had about $8,000 available for trading. In part because I assumed that bitcoin, which was down sharply from its recent high, would continue to crash, I decided to purchase one share of GBTC, thinking that, if it continued to go down, I would purchase another share the next day. At least that is what I thought I had done. But apparently I had accidently (and stupidly) put in an order for 100 shares. Although I have no memory of it now, I no doubt received a message that said, “Do you really want to do this?” But if I did receive such a message, I must have assumed, without reading it carefully, that it was informing me that I was using unsettled funds for my purchase so that, were I to sell before these funds became settled, my account would be restricted. That would have been the kind of message I had received many times previously; and because I had no reason to sell such a pittance over the next few days, I must have foolishly clicked on the “Yes” button without any idea of what this entailed. In any case, you can imagine my surprise and shock when I logged into my account Thursday night and discovered that my funds available for trading had become a huge minus number, namely, –$170,000.

At first I was confident that this was a calculating or a recording error, because (a) my brokerage account at Vanguard is not a margin account, but a tax-deferred retirement account, and (b) all of my previous experience with such an account has been that a mistake such as I had made would immediately result in a rejected trade. I even put the second point to the test by going into my wife’s Sottrade/TD Ameritrade account, where the funds available for trading were around $3,500. I thus put in a bogus buy order for 100 shares of GLD, which would have required around $12,000 for such a purchase. As I expected, I immediately received the following message in bright red: “Order rejected: There are insufficient funds to place this order.” That is consistent with all of my previous experience with retirement accounts. So Thursday night I wrote a message to Vanguard explaining the situation, and then telephoned the company before the market opened on Friday morning. It was then that I learned that I really had purchased 100 shares of GBTC, and I therefore had two days to do something about that $170,000 deficit. Worse yet, because this is a retirement account and I am already retired, I could not cover such a huge deficit by transferring additional money into my account even if I had the available funds to do so. Either I had to sell GBTC immediately or sell other assets to cover the deficit or perform some combination of these two actions. In the end, I decided to get out as quickly as possible and to cover my losses as best I could.

But early Friday morning the futures continued to crash; and once the market opened, GBTC continued to cascade lower. Having never experienced anything like this before and facing a very short time frame, I must confess that I started to panic. I know that this is always a mistake and also know how counterproductive it can be to sell at the market open. Ironically, had I been permitted to put in a market order, I would probably have done better because the price kept skipping over my limit orders before I could get them set. My order of 11.50 finally triggered a sale at the bottom for a $60,000 loss. By the middle of the day on Friday, I was already predicting that bitcoin would recover all of its losses for the day; and had I sold GBTC at the end of the day, I would have had a $20,000 gain rather than a $60,000 loss, not that I wanted either. Still, this sort of disaster could never have happened in my wife’s Scottrade/TD Ameritrade account, as I proved to myself. So I am more than a little pissed at Vanguard right now; at the very least, they should have required that I purchase 100 shares of GBTC by phone, if I really wanted to make such a silly purchase in those circumstances, before allowing me accidentally to spend $170,000 more than I had available for trading. I never even dreamed that this sort of thing was even possible in my tax-deferred retirement account at Vanguard.

So that’s my story, which I offer here merely as a point of interest. It goes without saying, I suppose, that this sort of thing would never happen while bitcoin was spiking up; it could only happen, to me at least, while bitcoin was melting down (hee, hee).
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Post Fri Dec 29, 2017 10:44 pm
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oldguy
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Sounds like you bought OPTIONS , not shares. In 'options' contract parlance, an order of '1' means one block, ie 100 sh.
So you probably selected 'options' instead of shares - and then clicked on 'one' resulting in 1 block, 100 sh.

If Scottrade trades bitcoin options, the same thing would have happened there. And that same mistake can happen while bitcoin is spiking up.

BTW, I've never traded bitcoin or bitcoin options, I only buy options on corn and on stocks - so I'm just guessing about what may have happened. Sorry, that was a nasty break.
Post Sat Dec 30, 2017 2:33 am
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Tom Talbott
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Hi Oldguy,

Thanks for your comment. In point of fact, I did not, and could not, buy calls in my account. I can sell covered calls and buy to close, but I cannot buy ordinary calls. I thought I had purchased 1 share of GBT only to discover later that I had accidentally (and stupidly) purchased 100 shares. I still believe that, however careless my own actions were, such a purchase, should have been rejected.
Post Sat Dec 30, 2017 2:52 am
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Carmen W
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Well, It was really disturbing for me to hear on american-writers.org that you have lost a really big amount. But now people who wanted to invest in bitcoin, they should be more protective and think twice before investing.
Post Sat Aug 11, 2018 7:09 am
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