Securing successful strategy from the broker stealing it

[ironchef]

Think about it this way, what if one day you have developed a strategy that gives you consistently good return and you go about trading till you realize your edge dries up? Would you prefer to think in hindsight maybe I should have done more to keep my edge from anyone including the broker or would you rather take action now and prevent it from ever happening to you?

My strategy is too volatile. No broker will want something with a 35-40% drawdown.

 

[ironchef]

Theoretically he can be fooled by randomness, or he can be right. Can you give with 100% certainty the correct answer including hard proof? No. So maybe he is right to worry.

If he is not fooled by randomness, he wouldn't be here, he would have attorneys, regulatory consultants, financial consultants advising him instead of asking us random retails.

Let’s make a quick calculation:

You trade 1,000 RT ES per day and make on average a profit of 3 points a day per contract. This results in 3,000 points profit at $50 equals $150,000 profit. What does your broker make on these trades? 1,000 times a commission of let’s say 70 cents per RT (it will be normally less), equals $700. If he copies just 1 day all your trades he will make $149,300 MORE than by just taking your commission. Your broker would need around 213 days of commission to make the same profit. If the broker can just steal 1 tick per RT, he will make $12,500 profit instead of the $700 commission. The broker can after 1 year quite his job with $3 million in the bank instead of $168,000 commission. Imagine the amount of money if he could steal the trades for 1 month of 1 year.

It is clear that he wants to have a lot of clients that generate a lot of commission. But just stealing from 1 client his trades will not harm 99,99% his “commission generating part”, and the stealing might make more money than his total “commission generating part”. Just do the math.

I never heard about a broker that was caught. That can mean 2 things: or it never happens, or they cannot be caught.

Most of us do not have a personal broker handling our trades, especially if we day trade or trade frequently. Do you have a personal broker?

 

[virtusa]

If he is not fooled by randomness, he wouldn't be here, he would have attorneys, regulatory consultants, financial consultants advising him instead of asking us random retails.

There is a huge difference between being right, and the ability to proof you are right. It is very difficult to proof because you will never have access to the whole procedure that your orders go thru. And it will be very expensive too. The biggest part of the handling goes thru computer systems. The problem is that you have no idea what goes in the system, what goes out, and what happens in that computersystem. Can you give me in detail what happens with your orders? No, although that is the first thing you need. For that you need the source code of all software used in handling your orders. You will never get that.

If even the US cannot proof that Russia intervened in the last elections in the US, how can you then proof that brokers copy you? Or did NOT copy you? Electronic abuse can be very difficult to prove, especially if you use software that is provided by the potential cheater (your broker).
Do you know from each piece of software you install on your computer exactly, and completely what it does? No, you don't even have any clue about that.
Facebook and Google collect and (ab)use on a massive scale data from their customers, without them even knowing that.

Gaussian has the same opinion as you. He posted about abuses that happen on internet. It is about data that is much less interesting financially then copying high profitable trades. He is even worried about that happening. But cheating for big amounts of money would not happen? I would think just the opposite, they go for the big money. Have you never heard about insider trading? That is also forbidden and there are a lot of protective measure so that it would not happen. But it happens.

PS I do have brokers. What is the definition of a personal broker?

If somebody steals your car at night, you will see it next morning.
If somebody steals all the data from your PC, you will never know. And even if you would know, you would probablyt never be able to proof it happened, not to mention that finding who did it is even more complicated.

 

[qaz]

My strategy is too volatile. No broker will want something with a 35-40% drawdown.

The brokers are able to see the top traders in their system and take their pick.

You may have a system that probably isn't ideal for them right now. What if one day with more experience trading, you developed a strategy that put you among the top of traders? It will be too late to worry then. If something in the future is preventable then it is wise to start now rather than later.

 

[shh]

As virtusa and qaz have mentioned, it is very likely that the broker steals the idea. If possible they reverse engineer it to check if the logic flows, if not they will copy it (crowd it), or frontrun it as they sell the order flow to hedge funds. The bigger and the more technologically advanced the broker is, the harder it will be for the retail client to detect this behavior. It is almost impossible for the retail to come up with concrete facts to accuse the broker of such misbehavior. Those who blame virtusa for his small account size are traders with no original idea. Their argument sounds like when Gates had Microsoft starting in his garage he shouldn't have cared about the intellectual properties of Microsoft. Most people who are ambitious and trade, might want to eventually launch their own trading firms or scale up; they have risked time and energy and learning, and they do not want their ideas to be stolen by the rent-seeking brokers. I know that I will get a response that "If I am so delusional then nobody has forced me to use a broker"; but we are all adults and looking for a solution.

 

[qaz]

In the meantime talk to your Senators about enacting a trade privacy law.

 

[ironchef]

You may have a system that probably isn't ideal for them right now. What if one day with more experience trading, you developed a strategy that put you among the top of traders?

Don't think that will ever happen to this newbie.

We amateur retails can dream but should understand reality. Just like I don't worry about airplane crash when I flew I don't worry about my broker stealing my signals.

But for some of you, if you are that good, by all means.

Have a good day and happy trading.

 

[Sig]

In the meantime talk to your Senators about enacting a trade privacy law.

And what exactly would that look like? BTW, I think they have more important things to worry about right now. In fact, I'd say they have more important things to think about all the time! If the do or not is another matter.

 

[beatles]

they have better strategies than you ,and your account is marked if you are making huge profits.
these HFT machines would trade against you since they know you are a 'trader' and your trading strategy. what trading strategy.
any trading strategy you have, they know the strategy.
these algos people talking about are just market makers with huge amounts of data and buying and selling power. that can move markets. they can crash the market if the feel like it or rally the market. if they feel like it.
the rule of thumb is don't try to trade or hold positions overnight if you are trader and trading large. overnight is too illiquid. like a penny stock, it's too illiquid.
paper strategies don't work in live markets due to illiquidity issues and HFT

 

[qaz]

Don't think that will ever happen to this newbie.

We amateur retails can dream but should understand reality. Just like I don't worry about airplane crash when I flew I don't worry about my broker stealing my signals.

But for some of you, if you are that good, by all means.

Have a good day and happy trading.

When you believe that the best you can achieve is just a low % return then you have created a low ceiling above you and fulfilled your own prophecy. Don't limit your belief and your potential is limitless.

Have a good week.