What keeps a brokerage employee from shadowing your trades?

[hajimow]

In 1997 I used to trade through TD bank and for shorting, I had to call them. When I called the local branch, they did not ask my account number as they already had it by heart. I had also personally met them. One of them told me that he shadowed one of my short trades but since as an employee he could not hold the position longer than a certain period, he closed the position at a loss.
Conclusion: They can do it but as other respondents mentioned, you cannot 100% be sure that the trade will be profitable. Some traders also trade from multiple accounts so they cannot be chased . Short in one account and be hedged in another account through another broker.

 

[Aston01]

regulations. Employees can't trade. They need to pre clear potential trades and hold them for at least 30 days. No shorting. Options are so restricted you cant make money

However when i first started ( pre regulations, pre electronic) there was guy shadowing an account and made over 100k in less than a year and then lost it when he tried trading himself.

People continue to mention the trading regulations on the employee which would seem easily surmountable through the use of an unrelated 3rd party. Frankly you would be a fool as a brokerage employee to personally attempt to trade it yourself especially while still under the employment of the brokerage.

When I called the local branch, they did not ask my account number as they already had it by heart.

I once had something eerily similar happen in person with a bank employee I had never met.


It seems from the responses so far it isn't an unheard of issue, but not many particularly on a retail level are aware of a consistent means of preventing it.

 

[Maverick74]

People continue to mention the trading regulations on the employee which would seem easily surmountable through the use of an unrelated 3rd party. Frankly you would be a fool as a brokerage employee to personally attempt to trade it yourself especially while still under the employment of the brokerage.



I once had something eerily similar happen in person with a bank employee I had never met.


It seems from the responses so far it isn't an unheard of issue, but not many particularly on a retail level are aware of a consistent means of preventing it.

Can respond to my simple question? I would love to hear how it's somehow easier to speculate on a trader then the market. You can make up an answer if you want to.

 

[EnergyTrader]

Can respond to my simple question? I would love to hear how it's somehow easier to speculate on a trader then the market. You can make up an answer if you want to.

In theory a consistently profitable stock is visible to everyone and would be bid up by the market until it no longer outperforms the broader market.

The same is not true for a successful retail trader, since only the broker employees can see the success, and unless broker employees start shadowing the retail trader in volume, his system will continue to be profitable.

In practice it is not that easy for a broker employee to tell a truly successful retail trader from a much larger number of retail traders that have just been lucky over the past 12 months : if the successfull retail trader switches brokers every 12 months that will make it nearly impossibly for their trades to be shadowed reliably.

 

[Maverick74]

In theory a consistently profitable stock is visible to everyone and would be bid up by the market until it no longer outperforms the broader market.

The same is not true for a successful retail trader, since only the broker employees can see the success, and unless broker employees start shadowing the retail trader in volume, his system will continue to be profitable.

In practice it is not that easy for a broker employee to tell a truly successful retail trader from a much larger number of retail traders that have just been lucky over the past 12 months : if the successfull retail trader switches brokers every 12 months that will make it nearly impossibly for their trades to be shadowed reliably.

This makes no sense at all. Are you saying I could pull up a list of the best performing mutual funds last year and invest in one of them and make a killing? The issue here is not liquidity. You have to "pick" the right horse. Almost all the empirical evidence out there on the subject mathematically says that is almost impossible to do hence the popularity of "indexing".

If I see a guy that is on a hot streak and he seems to do no wrong, I'm looking backward at historical data and now I have to "predict" what he will do in the future. Ever bet on pro sports? LOL. Dude, there is no liquidity issues there. It's very hard to do no matter how hot someone's hand is. By the time you notice some "hot" trader, he will cool off by the time you start following his trades.

Jack Schwager (of the market wizard fame) wrote an outstanding technical book back in the 1990's detailing the math of investors who chase CTA performance. The results were eye opening. It's VERY VERY hard to do.

 

[Maverick74]

http://www.amazon.com/Managed-Trading-Jack-D-Schwager/dp/0471020575/ref=asap_bc?ie=UTF8

This is the book I'm referring to.

 

[OTM-Options]

Take a look at myth #4.


Top 10 Myths

1. Pigeons blow up if you feed them uncooked rice.
2. If you shave your hair, it returns thicker and faster.
3. There's no gravity in space.
4. Brokerage employees shadow the trading concepts of successful traders.
5. Marie Antoinette said, "Let them eat cake."
6. The Great Wall of China is the only man-made structure visible from space.
7. ET regular OTM-Options doesn't make money buying weekly OTM options.
8. Thomas Edison invented the lightbulb.
9. Humans only use 10% of their brains.
10. Razor blades placed in Halloween candy.

 

[Aston01]

In theory a consistently profitable stock is visible to everyone and would be bid up by the market until it no longer outperforms the broader market.

The same is not true for a successful retail trader, since only the broker employees can see the success, and unless broker employees start shadowing the retail trader in volume, his system will continue to be profitable.

In practice it is not that easy for a broker employee to tell a truly successful retail trader from a much larger number of retail traders that have just been lucky over the past 12 months : if the successful retail trader switches brokers every 12 months that will make it nearly impossibly for their trades to be shadowed reliably.

EnergyTrader - I guess without knowing the extent or ease of access to the analytics it would be hard to determine the feasibility of parsing the standouts.

BTW - Thanks for responding to Maverick74's tangential inquiry.

 

[happy1001]

As already mentioned by others, we cannot prevent our trades being shadowed if we are doing it through the normal brokers. I have no practical idea regarding the "broker-neutral execution platform" so I cannot comment on them.

But you can very well use multiple brokers and then execute your trades in such a manner that the exact trading system / method cannot be reverse engineered in any way. You can execute "dummy/fake trades" which are not the real trades generated by your system. You can hedge those trades by taking opposite positions in the different broker accounts. There is no way for them to know whether you have hedged this particular trade in other broker account or if it is your normal real trade.

I am just sharing my thoughts on this topic, I am not saying that it is the perfect solution for this issue.

Thanks for bringing up this interesting topic.

With Regards

 

[i am nobody]

These are things that really happened, and from some of them I was witness when it happened:

• A Trader from a big German bank showed his tradingsystem years ago on a presentation from Dow Jones Telerate. He used a PCsystem called Teletrac. I had a Teletrac too and knew that it was possible to steal his system because you could easily edit all code. I was witness when it was really stolen during this presentation. I actually saw a printed copy of that system. This can and will never happen, but it happened.
• A lot of resellers of software can easily steal your trading program once you installed their software. You have no control over what they install and internet made it very easy to send and receive any information to the reseller. They pretend to need a constant connection with your PC. Years ago this was not necessary. If you give me the opportunity to install "very good trading software" on your PC, I can send you within a few days a hardcopy from every tradeplan you installed on your PC. This can and will never happen, but I am sure it happens.
• I know a reseller that uses Gen-DelfInject in his software. If you remove the dll your program does not work anymore. Why does he need DLL injection? He sold to thousands of clients all over the world and is still in business. He has a lot of clients ( he told himself thousands in the US) using several of the biggest trading platforms in the US. I tested his software on a separate PC only used for testing and removed everything again (restored a disc image) when i found out what could happen. But I am sure he is very honest and would never have bad intentions.

So your broker is a minor problem. The software you use is a much bigger problem. XXX..... and all the others are potential dangers. They don't have to analyze anything and you cannot mislead them with fake orders and multiple brokers. They can simply download your whole strategy if they want. Virusses are in general installed while opening attachments in emails. For software developpers it is far more easy. They can incorporated it and you will install it yourself for them.

Microsoft: DelfInject.gen!X is a generic detection for malicious files that are obfuscated using particular techniques to protect them from detection or analysis