How to prevent brokers from knowing your strategy?

[Occam]

I was acquainted with a guy who worked for a bucket shop Forex place (and I mean a TRUE bucket shop) for a few years, and they did indeed examine the trading of those who were profitable over time, which he said was very small (1% or less?). Of those handful that they did examine, if I recall correctly most of them were just lucky for a period. My understanding was that they never successfully mined anyone else's strategy -- I don't think they were exactly rocket scientists, anyway. The firm itself eventually shut down.

But there was no getting fired for doing this -- indeed it was company policy for the handful of people who worked for the firm, from the top down. Or so he says. (It only had maybe 10 employees -- his firm would probably be an "introducing broker"? I can only speak analogously to futures brokers as I've never used retail forex.)

That said, I don't think you have much to worry about, beyond what would otherwise be done with front-running (an obvious strategy when you control the entire market as in retail forex), and if you are then maybe consider using the CME, which is a real exchange.

 

[trend2009]

in the 10-minute example, do you think when a big fund buys, he can fill his order in one order at that particular second? he may keep buying for a a few minutes and he has to buy quietly so that the price would not be disturbed too much.

the biggest challenge for a systematic strategy to compound profit is the limit of available shares. Why James simons has to return outsider's investment? it is because his system can not find enough liquidity.

if more people are using your system, you are sharing profits with others. this is not a problem as long as your trading size is small compared with the available liquidity. in my case, since I am trading illiquid stocks, I already feel the constraint of liquidity. my profit stopped compounding since the third year.

Quote from logic_man:

And when was the last time everyone in a specific field of human action decided to follow the same strategy? Never. Even if James Simons were to publish his secrets, other traders would take the basic ideas in a bunch of different directions, some good, some bad, and the market would still fluctuate.

I showed you how the numbers break down for even a 10-minute long trade and how the volume of those who are not following your strategy is 99% of the volume that happens during the duration of that trade. What is your response to that fact, rather than speaking in vague hypotheticals reflecting outcomes that have never occurred in human history?

 

[logic_man]

Quote from trend2009:

in the 10-minute example, do you think when a big fund buys, he can fill his order in one order at that particular second? he may keep buying for a a few minutes and he has to buy quietly so that the price would not be disturbed too much.

the biggest challenge for a systematic strategy to compound profit is the limit of available shares. Why James simons has to return outsider's investment? it is because his system can not find enough liquidity.

if more people are using your system, you are sharing profits with others. this is not a problem as long as your trading size is small compared with the available liquidity. in my case, since I am trading illiquid stocks, I already feel the constraint of liquidity. my profit stopped compounding since the third year.

Look, the question was about "brokers" not "James Simons" or "big funds". You keep using these outlandish examples of what could possibly, maybe, happen rather than stick to what actually is seen happening in the market every day, which is thousands of traders using thousands of strategies.

As for your own personal story, I already said up front that it requires a reasonably liquid market for this to be the case. Even then, what big fund is going to go playing in the pink sheets to replicate some random guy's strategy? They hire people from MIT, Wharton and other places to have them develop their own strategies, not copy some random retail traders. It would be a lot cheaper for a "big fund" to not hire anyone and just watch retail trader accounts for some level of success and then follow that account, which would be more profitable for those funds, no?

Bring yourself down from the clouds, man. Nobody's that eager to trade your strategy.

 

[trend2009]

we are talking about different scenarios. you are talking about average guy that makes tens of thousands per year; while i am talking about a strategy that makes tens of millions or even more.

Quote from logic_man:

Look, the question was about "brokers" not "James Simons" or "big funds". You keep using these outlandish examples of what could possibly, maybe, happen rather than stick to what actually is seen happening in the market every day, which is thousands of traders using thousands of strategies.

As for your own personal story, I already said up front that it requires a reasonably liquid market for this to be the case. Even then, what big fund is going to go playing in the pink sheets to replicate some random guy's strategy? They hire people from MIT, Wharton and other places to have them develop their own strategies, not copy some random retail traders. It would be a lot cheaper for a "big fund" to not hire anyone and just watch retail trader accounts for some level of success and then follow that account, which would be more profitable for those funds, no?

Bring yourself down from the clouds, man. Nobody's that eager to trade your strategy.

 

[logic_man]

Quote from trend2009:

we are talking about different scenarios. you are talking about average guy that makes tens of thousands per year; while i am talking about a strategy that makes tens of millions or even more.

Since my scenario was also the original scenario brought up in the thread, I'd say that means I was actually on-topic and you were addressing some different topic no one was asking about. I doubt the original poster was Jim Simons or some big fund manager looking to avoid having his strategy stolen by his broker. I'm pretty sure those guys know how to protect their intellectual property.

Again, it comes down to the fact that you are ignoring risk. Do you think it is risk-free for a broker to try to steal Jim Simons' strategies, compared to just taking his money for commissions? If you got caught, you wouldn't have a brokerage business left. Even the suspicion of stealing something would probably lead to the same result. The people running those brokerages aren't going to risk it. Unlike you, those people don't only focus on the potential upside of such a theft, but the potential downside. Since you're going to get caught, unless you pull off the perfect crime, why even bother trying?

 

[mcgene4xpro]

My understanding is the beg guys are playing using DMA and Broker neutrality techniques which are away from small retail guy like me for now at least. So, those big guys know how to protect their IP and it is not our question. The question is if you are retail trader and want to protect your ip from your broker, how could u do that?

Electric posts were very useful and i wish if we have more ET to share their opinions

Thanks

 

[trend2009]

the OP did not mention what kind of his system is. it could be a system barely profitable, or a great system that is why he is interested in protection.

what I concerned is employee of the brokerage house, while you were talking about the company itself. The company may not take the risk to decode client's strategy since such practice is hard to hide since the company has to rely on its employees to work on the subject.

in most of cases, individual trader does not have such a system worth stealing. but I know a guy who has a system on emini ES that is 85% correctness, average win>cut loss, and he makes a few millions per year. though he is individual, his method has no problem to scale up. such kind of systems worth protection from potential decoding from someone working for the brokerage house.

Quote from logic_man:


Since my scenario was also the original scenario brought up in the thread, I'd say that means I was actually on-topic and you were addressing some different topic no one was asking about. I doubt the original poster was Jim Simons or some big fund manager looking to avoid having his strategy stolen by his broker. I'm pretty sure those guys know how to protect their intellectual property.

Again, it comes down to the fact that you are ignoring risk. Do you think it is risk-free for a broker to try to steal Jim Simons' strategies, compared to just taking his money for commissions? If you got caught, you wouldn't have a brokerage business left. Even the suspicion of stealing something would probably lead to the same result. The people running those brokerages aren't going to risk it. Unlike you, those people don't only focus on the potential upside of such a theft, but the potential downside. Since you're going to get caught, unless you pull off the perfect crime, why even bother trying?

 

[ElectricSavant]

TY mcgene4xpro...

Side-note: I was scolded by the OP and was a little embarrassed for posting in this thread offtopic (I moderated my own post, but later began rambling again). He was correct. It is just so hard to post some of the technical solutions only, as a little background needs to be discussed to understand there is really no way to stop the stealing...

Over-Simplified: Many pieces of the puzzle (executions) and has the framework of OHLC....well the missing pieces can be defined.

ES

Quote from mcgene4xpro:

My understanding is the beg guys are playing using DMA and Broker neutrality techniques which are away from small retail guy like me for now at least. So, those big guys know how to protect their IP and it is not our question. The question is if you are retail trader and want to protect your ip from your broker, how could u do that?

Electric posts were very useful and i wish if we have more ET to share their opinions

Thanks

 

[logic_man]

Quote from trend2009:

the OP did not mention what kind of his system is. it could be a system barely profitable, or a great system that is why he is interested in protection.

what I concerned is employee of the brokerage house, while you were talking about the company itself. The company may not take the risk to decode client's strategy since such practice is hard to hide since the company has to rely on its employees to work on the subject.

in most of cases, individual trader does not have such a system worth stealing. but I know a guy who has a system on emini ES that is 85% correctness, average win>cut loss, and he makes a few millions per year. though he is individual, his method has no problem to scale up. such kind of systems worth protection from potential decoding from someone working for the brokerage house.

Yeah, OK, if you assumed that the OP was some guy making millions, I guess I can see that. Mind you, the assumption itself is pretty ludicrous, since any making millions probably wouldn't be asking this question here, but whatever.

Do you think that Jim Simons' brokerage is just putting any old schlub broker on the account? You think those guys aren't put through background checks, work in groups with full oversight by management and other security measures? You don't just walk in to Jim Simons' brokerage company, get a job and start working on his account the next day. I'm sure it's all of the brokerage's most senior people who work that account and could conceivably have access to his strategy. Those employees would have a lot to lose from trying to steal the strategy and failing.

There is absolutely no common sense in your scenarios.

 

[trend2009]

you have to know we are not talking abut common scenarios here. the common scenario is 95% of traders lose.

Quote from logic_man:

Yeah, OK, if you assumed that the OP was some guy making millions, I guess I can see that. Mind you, the assumption itself is pretty ludicrous, since any making millions probably wouldn't be asking this question here, but whatever.

Do you think that Jim Simons' brokerage is just putting any old schlub broker on the account? You think those guys aren't put through background checks, work in groups with full oversight by management and other security measures? You don't just walk in to Jim Simons' brokerage company, get a job and start working on his account the next day. I'm sure it's all of the brokerage's most senior people who work that account and could conceivably have access to his strategy. Those employees would have a lot to lose from trying to steal the strategy and failing.

There is absolutely no common sense in your scenarios.