Keeping your IP at a prop firm?

[interested]

I am currently trying to weigh the pros and cons of trying to trade independently versus trying to pitch a trade to established prop firms.

Are there any firms that let you keep your intellectual property / code? I hate the idea of doing all the coding work to setup my trade only to have to do it all over again at a new place years later. If your trade is successful, what guarantee do you have that the firm won't take it and just sever it's relationship with you?

 

[MattZ]

contract.

 

[interested]

Do the contracts have pretty standardized terms or is it wildly variable?

 

[Robert Morse]

I am currently trying to weigh the pros and cons of trying to trade independently versus trying to pitch a trade to established prop firms.

Are there any firms that let you keep your intellectual property / code? I hate the idea of doing all the coding work to setup my trade only to have to do it all over again at a new place years later. If your trade is successful, what guarantee do you have that the firm won't take it and just sever it's relationship with you?

I assume you are referring to a traditional prop model, not a 1st loss/JBO. It is possible to keep your code but hard to stop them from gaining knowledge from your process that they can use in the future if they choose to. Hard to litigate too.

I'm not sure what is "special" about your code or as you say your "trade". If it is a unique data set or way to manipulate data that is unique, It will be hard to hide.

 

[ETJ]

You're in the trading epicenter of the world. Find a backer. Assuming you have well-documented results - go to every CBOE, CME, OCC conference and listen to the speakers and then approach one. If your stuff is any good you're really just looking for trading capital and a revenue split. Not the only path, but one to consider.
A couple of caveats - documented results are everything - there are always ton's of folks looking for capital here. Volatility arb. is ridiculously over shopped here. Include the ownership of the IP in your agreement. Lot's of capital around looking for good ideas also lots of crap ideas looking for capital. Scalability is also very important.
Depending on your idea and the products trading lots of the existing shop are looking for innovation.

 

[interested]

I assume you are referring to a traditional prop model, not a 1st loss/JBO. It is possible to keep your code but hard to stop them from gaining knowledge from your process that they can use in the future if they choose to. Hard to litigate too.

I'm concerned with two scenarios:

1. I do all of the coding work, getting all of the nitpicky details right, then after a couple of years for whatever reason I have to part with the firm, and now they own my code and/or idea so I can't take it anywhere else, or I can but have to rebuild everything from scratch. That would suck.

2. I have sufficiently automated my trade and documented my code that they can run it without me. If they are unscrupulous this is a great way to increase their cut.

I am much less concerned with them figuring out some of the ideas and then deciding to code everything themselves from scratch. There are enough details to get right that I suspect reverse engineering would be more work than just pursuing new strategies.

 

[DaveV]

1. I do all of the coding work, getting all of the nitpicky details right, then after a couple of years for whatever reason I have to part with the firm, and now they own my code and/or idea so I can't take it anywhere else, or I can but have to rebuild everything from scratch ...

I don't understand. How can they prevent you taking the code with you when you leave? They may bring legal action to stop you using the code somewhere else, but how can they prevent taking it with you?

...
2. I have sufficiently automated my trade and documented my code that they can run it without me. If they are unscrupulous this is a great way to increase their cut ...

Don't give the prop firm documented code. Depending on the coding language, give them only the obfuscated code or compiled code to run. There is no need for them to see the full documented source.

 

[interested]

I don't understand. How can they prevent you taking the code with you when you leave? They may bring legal action to stop you using the code somewhere else, but how can they prevent taking it with you?

I am not a lawyer, but at any software development job it is standard that you can't leave with any of the code you wrote for the company. Anything you write becomes their property. I think they can argue theft just from you merely taking it with you, even if you don't go on to use it.

 

[DaveV]

I am not a lawyer, but at any software development job it is standard that you can't leave with any of the code you wrote for the company. Anything you write becomes their property. I think they can argue theft just from you merely taking it with you, even if you don't go on to use it.

Before becoming a trader, I was in software development for most of my life so I am well aware of both the legalities and the ethics. This situation is different. The OP is bringing his own software to the prop firm so he can use their equipment and capital to run the software to produce trading profits. After he leaves the prop firm, he want to take the software back with him and prevent the prop firm from subsequently using his software. The OP is not developing the software for the prop firm to subsequently use; he is developing it for his use only at the prop firm. As long as he is not using any of the prop firm's algorithms, source code or libraries, I see no reason for the prop firm to have any claims on his software.

Quote from Nolo.com Software and Application Development Agreements:
Developers own the copyright to software unless the developer is the client's employee or the software is part of a larger work made for hire under a written agreement. In order to own the copyright, the client must have an agreement transferring ownership from the developer to the client.

 

[MattZ]

Do the contracts have pretty standardized terms or is it wildly variable?

That is specific to the firm. While you are considering only the legal part, consider the politics that are involved in trading OPM. Their risk management terms, supervision, and clauses could stall your progress as a trader.
Many times it's just better to trade at the comfort of your home while you set the rules.