Does a strategy become less effective or more effective once brought public?

[wrbtrader]

You're right, it didn't improve their overall returns but it did improve the returns on those specific positions for the firms involved in the rigging. Then again, after being caught and the penalties...they took a big hit.

In hindsight, I'm sure the traders involved in those illegal activities now think it wasn't worth it plus losing their own jobs but only because they got caught.

Yet, as discussed in one of the other posted articles...those fines are not enough to deter other bank traders from doing it. There should be jail time and barred from the industry too.

In fact, many banks have now prohibit their traders from using those chat rooms.

Regardless, I don't think Hedgefunds are sitting down at a table (meeting) and sharing trade strategies but we know that managers move from firm to firm. Surely, those managers aren't ditching their tactics just because they signed a non-disclosure document at their prior firm ???

Thus, they still maintain their prior contacts just like those FX currency traders did.

wrbtrader

 

[Overnight]

To be honest, if you have to call your competition in order to discuss positions, you are probably a shitty hedge fund.

I'm not an idiot, I know that it is done and that it is illegal. But it doesn't improve your returns. When it comes to FX and Libor, they fixed and manipulated one price in order to shine up their own portfolio in another.
Like buying up all German30 stocks in order to prop up a huge FDAX position.
This is not "together" either.

Indeed. I recall reading the complicated setup like this that is considered very bad on the CME on the USA futures side. I reckon other regulatory bodies would also frown on that activity.

 

[TommyR]

over time it really should . however there is value in giving free weapons to some countires even though in the short term they get weapons that are twice as good as they should have. you dont want a globalist in the dark in a mountain cave developing a long range ballistic missile capable of carrying a nuclear warhead if its 1945. its much better if they have 2nd hand ones we dont use

 

[BearTrades]

Publicly available strategies are as good as using no strategies. When you run a backtest, you will find that most of them lose money, even more so when commission and slippage are accounted for.

Profitable strategies, on the other hand, will never be divulged to the public. So instead of being obsessed with other people's edge , go find your own edge.

Wrong. I do have my own edge and I have been trading it profitably for a while now. I am in several discord’s helping beginner traders teaching them my trading style because I like to help. I asked this question because wanted to see if anyone on here has had this particular experience. Think before you respond buddy.

 

[Specterx]

When a winning strategy is brought public and more people start to trade it, does that strategy become less effective, meaning the smart money figures out a lot of people are trading the same way so they figure out how to exploit that. Or does the strategy become more effective, more buyers, more follow through etc.

Obviously, any strategy (edge) becomes less effective as more capital is deployed to it, and/or as awareness of it increases. This is basic logic. It defies common sense to claim that a strategy could become more effective as more people use it - imagine if every investor in the world dropped what they were doing and tried to trade the strategy, where would the alpha come from? Who would take the other side of the trades?

When you have cases of speculative bubbles (which can last quite a while) being inflated by dumb money public participation, or trading gurus front-running the signals they sell, it can appear that greater awareness is improving returns to the strategy - but the underlying dynamic in these cases is basically a Ponzi scheme. The different layers of participants are not in fact following the same strategy, and only a tiny number of those participants will actually realize excess returns.

 

[ironchef]

Of course this is going on but its illegal. I remember it was going on between the Banks in currency trading and for many years many denied such was occurring until the infamous Cartel got caught.

https://www.bbc.com/news/business-48292946

In fact, over the years...other Banks have been caught and fined via using the infamous Bloomberg chat rooms to arrange their positions with other financial firms. I still remember so many Forex retail traders screaming the markets were rigged. Yet, so many others would come out and say it wasn't true...you gotta find your edge.

https://www.bloomberg.com/news/arti...-fx-tips-how-chatrooms-cost-banks-1-2-billion

https://www.bloomberg.com/news/arti...traders-on-trial-for-chats-that-cost-billions

https://www.bloomberg.com/news/arti...st-even-after-10-billion-in-fines-traders-say

I don't know about Hedgefunds but I do know about institutional trading firms. I have sat in an office with an institutional trader and watched a friend call another institutional trader at another firm to discuss their planned positions. I now that can't be legal...right ?

Further, I've seen traders from the same firm plan their positions together (hedges).

The things is this. None of the above situations involves someone revealing their trade strategy to another financial firm. Instead, it involves letting another financial firm know when your firm is buying / exiting a position so that they can profit too...like some kind of insider scheme.

Gotta be naive to believe that Hedgefunds aren't doing it too...not about strategy revealing but about revealing / organizing your buying / exiting of positions with other firms.

P.S. The institutional trading firms I visited...mainly traded money from very large pension plans although they have their fingertips into other stuff like University Endowment Funds.

They've found other ways to become competitive after very poor returns that many know about.

wrbtrader

OK, so @dozu888 was correct. He and his pro boys do work together and coordinate their moves to make money.

 

[zdave83]

Obviously, any strategy (edge) becomes less effective as more capital is deployed to it, and/or as awareness of it increases. This is basic logic.

My experience has been that this is not a general truth ... although there are undoubtedly cases where it is true. I trade a basket of 7-10 option orders simultaneously ... deploring more capital has not created a problem ... and I can't imagine how much capital would be required to distort all the markets of those different orders.

It defies common sense to claim that a strategy could become more effective as more people use it

My experience has been that this is also not a general truth. I've seen too-many-to-count pump-n-dump schemes that rely on, or benefit from, increased participation to be profitable.