What keeps a brokerage employee from shadowing your trades?

[i960]

I'm just saying its a generic way of hooking syscalls at a low level. It's not necessarily nefarious or even that extreme.

If you have a piece of code you didnt write and you have no interface to it but you know hooking a particular syscall or library call will allow you to solve the problem then dynamic library injection is one way of doing it. Once something is compiled, unless it has a provided API to manipulate internal structures, you're pretty much SOL on any normal approach.

 

[rmorse]

There seems to be two concerns here. In my opinion, being concerned about your broker looking at your trading, is not something I would spend much time on. I just don't think it's common enough to be concerned with and should not effect your returns. If you have written an automated system and you used outside parties to help write your code, then you have to be concerned with the type of people you share that with. If someone were to run the same code, not only would that be unethical but could effect your returns and quality of your executions.

 

[i am nobody]

It's not necessarily nefarious or even that extreme.

Reality will be somewhere between: just software needed for the optimal functioning of the package, and software to steal all you have.
Most people will never have any clue what really happens. And that's precisely what is so interesting for criminals: they can steal without ever being caught. Watch what NSA does with american citizens but also will politicians all over the world. Nobodybelieved this till Snowdon talked and proved.

For me it is also strange that not a single software reseller talks about this issue, maybe they don't want to wake up sleeping dogs? Tradestation 3.5, 4.0 and 2000i never needed any internet connection and worked very well. And 2000i worked already in the internet area.

You can of course also believe that these things will never happen to you. But I learned over the years that in this business ( but also in other businesses) you should NEVER trust anybody. A sound dose of suspicion is necessary to protect yourself, if not sooner or later they will teach you a lesson that can be quite expensive.

 

[zdreg]

What prevents a brokerage or a rouge brokerage employee with the right access from shadowing the trading concepts of above average performing accounts?

I've seen this question approached from different angles a couple of times on ET, but more often then not it is dismissed with a variety of deflections. So lets get a couple of the most common ones out of the way so we can make room for people who can really contribute to the discussion.

1.) Unless your trading an eight figure account your not big enough to matter.

This seems completely irrelevant considering the right access would allow the person the luxury of cherry picking the information most useful to them. If the periodic small guy didn't stumble upon something unique tech conglomerates wouldn't need to buy start ups for millions and billions.

2.) It's too hard decipher what I am doing to make all this money.

First ... lets see you make that argument to the IRS. Second unless you have an absolute rats nest of trading someone with enough time, access and motivation could pick out exactly what they felt was of benefit to them. Lets face it there are a lot of smart people out there with more time then money, hence the reason for billion dollar patent portfolios to prevent reverse engineering an other forms of intellectual property theft.

3.) The rouge employee would easily be caught.

In reality it could likely be very difficult to catch someone with the right access doing this (think Snowden), and without physical evidence be quite difficult to prove. Once they knew what worked and why, they wouldn't need further account access. They could either quit and implement it themselves or partner with a 3rd party.​

I bring all of this up because it's not a topic that is often fully addressed. I would like to find out from those far more experienced in the area then I am, what measures are commonly taken to prevent this type of an issue from even becoming an issue to begin with.

"hubris goeth before the fall"
it all hubris on your part. who gives a damn about your trades.

 

[i am nobody]

who gives a damn about your trades

You have no idea at all how his trades are. That is the first and essential thing you should know to make a correct judgement.
If somebody gives you a closed box, can you tell what this box is worth without knowing what is inside?

Why everybody who enters a big fund as an employee has to sign very restricting documents? Because they want to share all their knowledge with the whole world, or to protect their knowledge?

I am just a small trader but I know dozen of people on ET who are interested in my trades and even more in my tradeplans. Especially if they receive them for free.

I am interested in your trades, can you put them on ET in full details? And if not, can you tell me why not?

If you desperate want to buy some thing, the first thing you do is tell the seller that in fact you are not interested and the price is much too high. But as a good person you want to help him by giving him small money so that he gets ride of something that in fact has no value and is useless. The same applies to your remark.

 

[Maverick74]

Maverick is correct. Even if someone copied your trades one for one, their risk tolerance, knowledge, conviction and makeup are different. Since then I conclude that I could post my trades and most people would still manage to lose money. It is why I never bother with journals or sharing trades (except for only H who I did 2 live real trades with explaining what I was doing to teach. Words seemed too slow to be helpful). To be statistically significant, there are not enough trades. I would never copy someone else for any other reason than to test their premise to see if I wanted to work further with the concept. There is no magic in trading so stop looking for it.

StarDust, I've told this story many times on here. When I traded at Worldco back in the day, I use to help struggling traders. One of the ways we did this is we moved the guy right next to you so he could watch you trade. Well this one guy was really really struggling and I got frustrated so I told him, look, here are my screens. I'm going to turn them so you can watch every single trade I do. I'll even whisper to you as I click the execute button. I will tell you EXACTLY when to buy and EXACTLY when to sell. His account was deep in the hole and we needed to get it back so this was a last resort solution. So sure enough we did this little experiment for about a month. I continued to make money every day and guess what....he continued to lose money. It became a joke. What was his problem? Very simple. Poor execution. He traded exactly the same stocks I did. For the most part he entered around the same prices I did and for the most part, exited around the same prices.

Here is the rub....roughly the same and the same are NOT the same. I traded about 500k shares a day and probably netted around .02 a share. Two messily pennies. That's came out to 10k but think about it, if his execution was a few pennies worse then mine and it most certainly was, he would not have a positive outcome yet I was banking 10k. Those pennies add up. What also hurt him was maybe one trade a day out of 30 or 40 he would not get out when I did. He would miss a sale and then get hung. He would end up holding as the stock plunged. All it takes is one bad trade like that. This is why it is so hard to replicate someone's trading.

And of course back to my original argument which no one from the tinfoil crowd had an answer to, you cannot predict future trader performance. There is no way around this. Just saying "Oh I could" is not a proper response. LOL.

 

[i am nobody]

And of course back to my original argument which no one from the tinfoil crowd had an answer to, you cannot predict future trader performance. There is no way around this. Just saying "Oh I could" is not a proper response. LOL.

I know for sure that the performance of Renaissance Technologies, will be much higher than mine. That for me is enough to copy their trades or steal their programs. And this is a prediction that will come true. Now your question is answered.
Predictions only have to be accurate enough to make money. The same applies to trading. You don't have to predict with high accuracy. if I predict that I will be profitable this year it is a prediction too, and I am sure I will be profitable this year. So I can predict, within certain limits. But limits that make me money.

 

[Maverick74]

I know for sure that the performance of Renaissance Technologies, will be much higher than mine. That for me is enough to copy their trades or steal their programs. And this is a prediction that will come true. Now your question is answered.
Predictions only have to be accurate enough to make money. The same applies to trading. You don't have to predict with high accuracy. if I predict that I will be profitable this year it is a prediction too, and I am sure I will be profitable this year. So I can predict, within certain limits. But limits that make me money.

No, you DON'T know that for sure. That is hindsight bias. I also know who won last year's Super Bowl. I have no idea who will win next year's. James Simon had a commodity fund that blew out before he launched Renaissance. Which actually made it difficult for him early to get investors into Renaissance. Years after Renaissance became successful he launched a managed futures product and an equity fund. Both were failures! You cannot predict the future. Do you want to tell me which hedge fund will have the best performance for July? Come on Mr. Oracle. If it's so easy, tell me who the big winner will be BEFORE the results. I can't wait. You are on the clock.

 

[Spearhead]

Second question. If it's so easy to "pick" a winning trader, then why is it so hard for the public to "pick" a winning mutual fund or winning hedge fund. Under both situations you are looking at past historical data performance to make a prediction going forward.

Just for argument's sake, do you think you'd have an edge if you had access to Carl Icahn's or Bill Ackman's personal portfolio? I don't think you'd have to be that smart to take advantage of that info. It should be a pretty hefty edge. I don't think I'd mirror every trade, but I'd certainly try and figure out their rationale and sift out the ones like Allergan, Herbilife, etc. where activism or insider knowledge is involved. For example, if they entered oversized positions very fast, ahead of a known news event, etc.

Guys like this are probably paranoid about secrecy, so not saying that it would be very easy to get that info. However, I'd postulate that even at Ameritrade, if you can do some analytics and sift out the top .01% percentage performers over the last 5 years, you could find yourself a pretty hefty edge. I would look for similar patterns such as guys who open large positions ahead of news events who seem to consistently get it right.

 

[Maverick74]

Just for argument's sake, do you think you'd have an edge if you had access to Carl Icahn's or Bill Ackman's personal portfolio? I don't think you'd have to be that smart to take advantage of that info. It should be a pretty hefty edge. I don't think I'd mirror every trade, but I'd certainly try and figure out their rationale and sift out the ones like Allergan, Herbilife, etc. where activism or insider knowledge is involved. For example, if they entered oversized positions very fast, ahead of a known news event, etc.

Guys like this are probably paranoid about secrecy, so not saying that it would be very easy to get that info. However, I'd postulate that even at Ameritrade, if you can do some analytics and sift out the top .01% percentage performers over the last 5 years, you could find yourself a pretty hefty edge. I would look for similar patterns such as guys who open large positions ahead of news events who seem to consistently get it right.

No. Ackman was getting killed for a while. Some of his shorts almost bankrupted his fund. Had you tried to cherry pick some of his trades, there is some probability you would have been short one of his stocks that doubled in his face. It was only because he had a few big winners that allowed him to hold those shorts that went against him for months. Cherry picking is NOT the answer. And again, that comes back to trading. Do you think you have the "ability" to "predict" which of his ideas are golden? Well.....that is trading! It doesn't how matter where you are getting the info from, you still have to take a risk. You still have an uncertain future outcome. You still have to manage the position size, know when to get out. Know when you are wrong...etc. There is NO way around this.

There is no magic pill, formula, or secret. Most successful traders are successful because they are good at measuring risk, managing it, pricing it and optimizing it. And that requires a lot of hard work, a lot of skill and a lot of experience. You cannot simply "copy" it. There are no such unicorns.