Securing successful strategy from the broker stealing it

[Atikon]

I read somewhere some of these giants have their own FCM. I even knew the name of that FCM but forgot it. Could not find it anymore.

Theoretically anybody can start a FCM. For these giants the requirements would not be a problem, and the needed money also not.

Nowadays I believe even some Hedgefunds can join an MFT, so no problem distributing your Bids and Asks the way that ppl don't get behind it if you are small enough. This was one problem for Medallion. They perfected it, when Algo Trading was just starting out but they struggled with it aswell acc. to "The Man who solved the market" book

 

[RedDuke]

Correct, I am novice on this forum, but not to trading. Just asking a question. I take no offence at all - whatever you want to call me - paranoid, etc.. I am asking a simple question, hope not the dumbest on this forum - if you know those other threads/questions that have discussion about the same question- drop a line with the link. If not - sorry if I upset you by wasting your time with novice questions

i could not care less. looks like i hit a nerve. I gave you an advice that will help. The idea is to spread orders over different brokers. Reverse engineer is almost impossible, but if a broker does not see full strategy, it becomes truly impossible.

I have been in the same shoes, and that is why I called you novice, only novice will ask such a question. You will get what I am saying if you trade long enough.

You biggest worry should be positive expectancy, the rest does not matter much.

 

[qaz]

Wouldn't matter what I was talking about for two reason:

1. Employees and brokers have a fiduciary duty to their clients
2. A single instance of proving a breach of this contract could destroy a broker
3. Commissions are high enough that everyone is making enough money no one would care
4. Even if they did care a few employees stealing your strategy, assuming they have the capital, tolerance, and total information to do it, won't compromise your edge.



(1).

Zero risk in charging commissions. If they want to punish you for "being too good" they'll raise commissions. If your strategy is so good you're making 10,000 trades a year at $2/side they're already crushing it. Now scale that up to 100,000 clients and they don't really care about you.


To both of you - who cares if someone follows your trades anyway. More importantly - why would a broker risk executing a trade they do not fully understand? The entire premise of this argument is contingent on perfect information which they don't have.

Don't believe me? Believe there's a giant conspiracy? Let's play a game of numbers:

1. A broker employs 10,000 people.
2. Lets say around 1,000 of these people are responsible for their "trade stealing" department. Seems reasonable if they're doing this for the ~25% of their clients that make money.

It's been theorized that no more than 125 people can keep a secret. This would leak in one way or another and destroy the trust in the system. Since it hasn't leaked, the most reasonable conclusion is this conspiracy isn't real.

I am referring to the broker not staffs within the brokerage company. The brokerage industry is in the risk business. In fact every company takes risk to make money. The bottom line is to be as profitable as possible to please shareholders. So my question still stands :


In the context of you being a consistently profitable trader.

Do you think it is more profitable for the broker to:

1. Just Charge commissions
2. Free commissions but follow your trades
3. Charge commissions and follow your trades

 

[qaz]

i could not care less. looks like i hit a nerve. I gave you an advice that will help. The idea is to spread orders over different brokers. Reverse engineer is almost impossible, but if a broker does not see full strategy, it becomes truly impossible.

I have been in the same shoes, and that is why I called you novice, only novice will ask such a question. You will get what I am saying if you trade long enough.

You biggest worry should be positive expectancy, the rest does not matter much.

Spreading out trades among different brokerages might work to obfuscate only if you have a multi legged strategy.

 

[RedDuke]

Spreading out trades among different brokerages might work to obfuscate only if you have a multi legged strategy.

not necessarily unless you trade single instrument, single strategy and single direction. Send longs to one and shorts to the other. Alternate, if short term, do random switches and so on.

But it is all secondary, the main and most important ingredient is positive expectancy.

 

[ironchef]

You stay profitable for a while then it suddenly stops generating profit. Either they front run you illegally without getting caught, front run while you scale in and out , copy-trade you or they reverse engineer your strategy(if it is simple).

*Referring to brokers

You think the reason your profitable trading method suddenly becomes unprofitable because your broker front run you or copy-trade you? Could it be you were fooled by randomness?

Of course I am a newbie with unremarkable trading results so I don't worry about broker stealing my trades.

 

[arturo100]

Hey all,
This maybe "too simple" question for the Pros, but I have not found a sensible answer elsewhere.

Is there any way to protect myself from brokerage firms or trading software (TD Ameritrade, Tradestation, Multicharts) "stealing" my strategy, either through the successful back-testing numbers showing up on their end and simply copying it, or them seeing a steady and fast account growth, analyzing and reverse engineering the strategy?

Not sure "legal agreements" would do me any good - I would never know if one of the platform programmers or trade desk folks is exploiting software holes andtrading on the side with the successful customer strategies.

Thats funny. I heard stories that brokers are following you to actually get opposite side of your trade, especially when they spot that the order is coming from likely uninformed people (retail).

 

[Sig]

Seriously, stop flattering yourself OP. If you have had several years of consistently showing alpha with minimal drawdowns, this is something you need to worry about. I'm going to go out on a limb here and say that hasn't happened, therefor comparing yourself to big hedge funds which are about the only folks who actually might need to worry about this is just mental masturbation at this point. This is somewhere around issue number 74 for you to worry about in your list of issues at this point. If you're fixated on it then you're not going to work on the preceding 73 items and you'll never need to worry about this one. And seriously, you've got to be at least to 25th person I've seen post this line of question here....not a one of them actually delivering long-term alpha and most just disappear when they run out of money on their losing strategy. Could be that would have happened regardless, but their inability to rationally prioritize the issues the needed to overcome to be successful no doubt contributed.

 

[yoyotrader]

Seriously, stop flattering yourself OP. If you have had several years of consistently showing alpha with minimal drawdowns, this is something you need to worry about. I'm going to go out on a limb here and say that hasn't happened, therefor comparing yourself to big hedge funds which are about the only folks who actually might need to worry about this is just mental masturbation at this point. This is somewhere around issue number 74 for you to worry about in your list of issues at this point. If you're fixated on it then you're not going to work on the preceding 73 items and you'll never need to worry about this one. And seriously, you've got to be at least to 25th person I've seen post this line of question here....not a one of them actually delivering long-term alpha and most just disappear when they run out of money on their losing strategy. Could be that would have happened regardless, but their inability to rationally prioritize the issues the needed to overcome to be successful no doubt contributed.

Again, no need to be passive aggressive. 74 or 73, I asked a simple question. If you find it redundant, just carry-on.

 

[Sig]

Again, no need to be passive aggressive. 74 or 73, I asked a simple question. If you find it redundant, just carry-on.

I don't think the term passive aggressive means what you think it means. It means to be indirect and avoid direct conflict instead of just clearly and concisely saying what you mean and meaning what you say. With that in mind, to be perfectly clear and not in the least passive aggressive; I'm telling you that you're being a paranoid fool, just another in a long line of similar fools who have graced us with this same question. Did that fix the passive part for you?

And by the way, if you saw me posting a question that demonstrated I was clearly naive or not seeing something clearly, I would surely hope you would very directly let me know that as well.