Risk of system being copied by broker?

The opposite is more likely true.

Most retail brokers make money by taking the opposite side of your trades, ie IB TMBR executions.

Also, frontrunners usually get caught, which is why it would be difficult for your broker to step in front of you. Don't you think Stockwatch has gotten pretty good at looking for two or more traders that always make the same trades in the same stocks?
 
Originally posted by theprophe


If your not willing to pay fixed costs for a globex terminal for your system that you developed, I don't think you have to worry about brokers reverse engineering your trades.
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I knew somebody would say something like that. :) I just may go that route, but want to spend 6 more months trading it first.
 
i worked like 2 1/2 years for a broker and had extremely successful clients.

all my personal investment accounts at other brokers were monitored by a compliance officer and i was not allowed to trade on my own. of every trade i did on one of my accounts, the compliance officer received a copy + internetsurfing was monitored. so it was not possible to trade.

2nd is that although i tried to figure out what my customers did, i couldnt. there were certain things that were obvious. but u wont get the details of ones tradingstyle with just looking at his trades and following the charts. no way!

my 2cts...

kev
 
karabugla, did you work for as a futures broker or stock broker?
I agree with your second point, you can hardly figure out the secret of a sophiscated trading system by simply looking at the orders it generates.
But I am still a bit worried about front running. Is there any regulation in the futures industry to prevent that kind of activity?
 
"It is unlikely that a broker could reverse-engineer your trades based on just your tade history. As an example I have developed an e-mini system based on 5-minuite intervals and the decision rules are complex. I doubt if you could figure out my trading logic baded on arrows on a screen showing where I made my trades."
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They wouldn't have to reverse-engineer. All they would have to do is copy your trades. The profit possibilities for a large broker with a huge customer list are mind boggling IMO. Can you imagine being able to scan a customer database, identify all the ones that have a long term record of at least 15 trades a month, a win/loss trade ratio of at least 85%, and a profit on capital of at least 8%/mo, etc.. It would be like having 100 extremely successful traders working for you for no cost. They could program their computers to take the same trades with some fixed ratio of shares, IE "John Q buys 1000sh, we buy 600, John Q liquidates, we liquidate.". Even if it was not programmed individuals could watch the trades and duplicate them manually and there would be no paper trail(leg. "evidence"). "People will kill for money." that's for sure, so if anyone has been able to figure out how to piggyback trades and get away with it I'm sure they're doing it. If it's happening the only way I can see to get around it would be to switch brokers every six months so you wouldn't be profiled as successful. It's all part of the game.
It would be interesting if the SEC had a team of 20 or so "trade auditors" whose job it would be to examine individuals trade logs, identify the highly profitable brokerage traders, and then sit with them for a month and see if they continued to duplicate "their?" stellar performances.
 
Originally posted by bungrider
The opposite is more likely true.

Most retail brokers make money by taking the opposite side of your trades, ie IB TMBR executions.
More...
does that really happen? does it happen for everyone or just some people? and do they do it for all trades?
 
Originally posted by Minime
I've developed systems for years, and have been trading one successfully for a while now on the eminis. My question is: if you are making good money consistently, using a systematic method that could be reproduced via looking at the trade history, is there a risk that a broker (who trades their own accounts), could capitalize on this information?
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i've thought about this too, except it was for the IRS...since you have to list all your trades, if you make a lot of money, someone could just look at your trades.
 
Most of the successful traders I know combine technicals, gut feel and discipline... a broker would only be able to work out the technicals used by its successful traders... but the gut feel thing can't be copied cos it cant be conceptualised in any coherent way... and discipline is something thats gotta be kept up for long-run success... there are just too many intangibles involved in trading that cant be programmed into a PC... for any two situations which look similar from the technical side, my gut may tell me to take one trade and reject the other...

But having said that, it sure would be interesting to be a broker looking over the records of its most successful clients...
 
Originally posted by CoolTrader
karabugla, did you work for as a futures broker or stock broker?
I agree with your second point, you can hardly figure out the secret of a sophiscated trading system by simply looking at the orders it generates.
But I am still a bit worried about front running. Is there any regulation in the futures industry to prevent that kind of activity?
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i worked as a stockbroker. regulations for futures are the same imo. it is prohibited to frontrun in any way and the brokers are forced to have compliance officers that surveil the their brokers.
if i had traded intraday my account i would have gotten fired.
if i had been frontrunning a customers order i would have gotten fired.
this refers to stocks, futures and any other instrument traded at the company.
i am not 100 % sure about the exact regulations in us, but for brokers it is usually not allowed to daytrade (at least it was for me).

candletrader said it already: 'a sophisticated trader uses his technicals, gut feel and discipline'.
this makes it impossible to figure out trading systems imo.

candletrader - it is sure interesting to have a look at the records of the most successful clients :-). but i can tell u one thing - it can be very frustrating as well - if u see one guy consitently averaging 5k+ a day and u dont know how the heck he´s doing it u get really pissed.....

kev
 
If the guy was swing-trading and you entered an order 5 minutes after he did would it be considered front-running (in the legal sense)?
 
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