Firms stealing strategies....

P

praetorian2

I have spoken with a number of traders and quite a few are concerned that their brokers will or may have stolen valuable strategies. In trading, our strategies are our most vital strengths. It is for this reason that many top traders shy away from posting good information on these boards. With the exception of their closest trading buddies, only their brokers know of their strategies and trade histories.

This information is very valuable to a dishonest principle who wishes to capitalize on strategies that it's most profitable traders make large quantities of money from. If these strategies are employed in situations where there isn't a lot of liquidity, the profit potential will be quickly arbed away and the strategy will become worthless. Even, worse, if this dishonest principle shares the trading strategies with others, or worse, teaches them to other traders at the firm, the strategy will be arbed away, no matter how liquid the situation is.

After having spoken to a few people, and having heard other stories, I have grown to believe that there is a massive potential for abuse of the trader/firm privaleges. I was wondering if anyone here believes that they have had certain strategies comprimised by prop or retail firms.

The people who I've spoken to have used certain strategies for long periods of time before going prop, and have then had the strategy "mysteriously" stop working after joining a prop firm after a long period of massive success. They have been led to believe that their strategies have been canabilized by the prop firms. They can think of no other reason for the strategy to abruptly stop within a month or 2 of joining a prop. I was just curious if others thought this was a serious problem, or would like to share any suspicions or stories.
 
Just a question...I only trade futures, no stocks, so I am not all that familiar with the world of prop trading. If one had a strategy that successfully worked for a long time, what would be the reason to join a prop firm? Access to greater funds?
 
There can be no doubt about the fact that, for real traders, anonymity is your friend. Much of the sharing of strategies that is conducted out there is perpetrated by vendors, not traders.

Regarding the thieving of strategies by a given brokerage firm, it is quite possible that this happens. In the competitive environment of prop trading firms, this is more likely to happen than it is in a retail firm. A highly successful trader's clearing sheets could be analyzed for clues as to the methods employed, but this isn't always a simple task. All I can say for sure is that there exists a tremendous incentive for a proprietary firm to understand clearly how their best traders are making money, and to share that information with other traders; however, I don't think anything taught at seminars has any juice left to it at all.

The only caveat to all of this is that it is trade management that makes or breaks any given strategy. That is not as easy to emulate.
 
yeah, unfortunately this is the biggest reason i won't go prop. i'm very paranoid...the last thing i want is a bunch of johnny-on-the-spot guys in my stocks, knowing what my levels are...

i'd be curious to know if retail brokers ever spend the effort tracking their traders...hey def - a reassuring "no" for IB would be nice here :D
 
I do believe that brokers study successful traders accounts to figure out what they are doing. If you had access to that type of information - wouldn't you do the same?

Here is a cure for this over-curiosity syndrome.

Open two accounts (different brokerages). Every now and then enter a trade in one of the accounts and exit it in the other. That way you will be technically flat the trade. Then at a later time, reverse both trades to be flat in each account.

It will cost you an extra commission and bid-offer spread. Extra margin if you hold overnight. Money may be shifted from one account to the other depending on what it does while you are "technically flat".

I think this would work especially well if you call in your orders.

The above relates to futures.
 
I trade prop and could never imagine something like this happening, and I have been around awhile. I really don't believe they do this, I think with the big firms at least they do well enough off the commission dollars, and most are very open with what strategies they employ and usually have the backed traders sitting right next to everyone else, so it would be very easy to see what they are doing.

But, to play devil's advocate, whose to say that a retail firm could not do this as well. Doesn't IB make a lot of their income from their own trading operations under the Timber Hill name? Wouldn't it be possible for them to do the same? (Before I get everyone jumping down my throat for saying IB, let me say that I do not believe they do this, I think they are very reputable and one of the best retail firms. Just using them as an example, their name could be substituted for any number of retail firms). I'm just saying that if this happens I don't think you could single out prop versus retail, I think it all comes down to the quality and integrity of the firm.

But the bottom line with ANY strategy is that none of them work all the time, good traders are always changing and adapting their strategies to the market because the market changes, not because their strategies were stolen. I have been doing this for almost a decade now and have gone through dozens of strategies that at one time paid a ton and now don't work at all. But I have learned that strategies are cyclical like the markets, what may work this month, sucks next month, and then works again after that for 2 months. Instead of thinking that someone has stolen my golden idea, the answer for me has been to keep learning more and more strategies so that in any market I have something that can pay me for staring at these screens all day. Nothing works forever in the markets, change is the only constant.

My 2 cents,

-Jim
 
IB can't even process checks and account requests half the time. I don't think they have the ability to check my trading records, though I could be wrong. Honestly, I don't think there is any way to hide what you're doing, no sense in being Nixon paranoid either. As long as you can trust your broker, you're fine. The question is, how do you trust him.
 
Quote from TraderJimR:

...Doesn't IB make a lot of their income from their own trading operations under the Timber Hill name? Wouldn't it be possible for them to do the same?...
More...

Totally!

In that sense, with timber auto-executing against customers, IB wouldn't even have to analyze customers' accounts; they could just analyze TMBR's executions...

But the reality is that most of the strategies that IB's customers employ are not scalable enough to become profitable for IB, so I wouldn't worry too much. Besides, it's pretty unlikely that a non-pro IB customer would be doing anything that IB hasn't seen before...
 
Lets say that some customer consistently picks small cap stocks that go up huge. Wouldn't IB be able to monitor what his newest position that he's buying 2% of the company of is. In that case, if IB buys just 10k shares, it will be harmful. THey'll likely buy way more if this guy is a winner. That's something that IB can pick off. I'm not trying to make a prop/retail debate. I just wanted to know if traders felt that firms were taking advantage of them, particularly when it comes to shorter term trades.
 
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