Broker Could Steal Your Strategy???

[ChadZ1]

So I didn't know where to put this, but figured those of you trading for a living might have shared this concern.

This is probably paranoid, but imagine you come up with a very successful trading strategy and have consistently had GREAT returns for a number of years. Is there any reason to be concerned about your broker noticing your great returns and trying to copy your trading strategy and thus ruining it? Or, perhaps, if they can't figure the strategy out, and if they're one of the electronic brokers, they might just tell their system to make the same trades every time you place them except have their system put in their trades first.

Is there cause for concern? I realize one might say there's nothing to be worried about because you'll never come up with a strategy so good that others would notice you above everyone else and want to copy, but hypothetically what if you did? Are there ways to protect your strategy?

 

[TraDaToR]

Don't worry if you aren't making at least 7 figures. They don't need to trade to make money.

 

[ChadZ1]

Quote from TraDaToR:

Don't worry if you aren't making at least 7 figures. They don't need to trade to make money.

Thanks for the response. Do you think an employee of the company might be interested and able to do something though?

If I had free-reign on a brokers computer system, I know I'd look up the traders with the greatest returns and find the ones who have done it consistently and then follow and copy their trades. I imagine there are protocols in place to stop that, but still I wonder...

Also, any thoughts if you actually were making seven figures?

 

[MTE]

Quote from ChadZ1:

...Are there ways to protect your strategy?

Use multiple brokers.

 

[NetTecture]

Well, lets get technical.

ANYONE with an access to not only your account information but also your order flow can possibly start deducting your strategies.

Order flow because not all orders are executed. It is a lot harder to distinguish between profit targets and protective stops if one only sees buy and sell. Seeing the orders (and their movement) can help.

That being said, a couple of technical things make it harder:
* Not all strategies are trivial. It is quite hard sometimes to get exact information. How long is your MA exactly?
* One major point may be distinguishing strategies as long as they trade similar size / signals. If you ahve 4 differnt setups, always buy / sell the same X at the market, I need to differentiate between the 4 setups before I can start reverse engineering them.

All that being said, I would say.... dont get overprotective. Unless you make a LOT of money and the strategy scales WELL.... it simply is of no interest for the BROKER.

For an employee... well... lets say: you know that people say.... getting a strategy is the easy part, trading it the hard one

 

[ChadZ1]

Quote from MTE:

Use multiple brokers.

Yeah, good idea. Occurred to me too, just seems like quite a hassle, especially with all the $ probably needing to be transferred back and forth between the brokers. Also, that works best w/ a complicated, multi-legged strategy. If someone just had amazing picks like Warren Buffet (I realize no one is going to be trading nearly as many shares as him) that wouldn't work unless you're talking about changing and cycling brokers ie changing the broker you use after making above an set return.

 

[dtmike]

I would be more worried about my broker fading my trades. If I consistently lose than they have a great chance to make money by doing the opposite of what I am doing and they would only have to enter after I made my trade and not try and figure out why I enter when I do. This would be much easier to do. Once I wash out, they pick on the next loser. Any thoughts on this, does this happen?

 

[NetTecture]

Possibly. I read somewhere brokers have special probgrams for that - when trading volume in a loosing accoutn goes up, it is.... a trader doing suicide trades, good to fade.

THAT SAID: do not forget your broker by contract has to put your trades on the exchange (except FOREX, this is why many do not trade that).

You really think fading YOUR trades will move the market? If not - what do you care? You still get fair trades on the excahange.

 

[TraderZones]

Quote from dtmike:

I would be more worried about my broker fading my trades. If I consistently lose than they have a great chance to make money by doing the opposite of what I am doing and they would only have to enter after I made my trade and not try and figure out why I enter when I do. This would be much easier to do. Once I wash out, they pick on the next loser. Any thoughts on this, does this happen?

Fading a loser is not a worthwhile trading strategy. Losers are more random/unpredictable than anything,and is not something you can take the opposite on.

 

[dtmike]

Thanks all, makes sense.