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.
http://www.elitetrader.com/et/index.php?threads/consecutive-winning-trades.276502/#post-3841062 http://www.elitetrader.com/et/index.php?threads/fcm-pitfalls-and-poll.286653/ http://www.elitetrader.com/et/index...er-follow-you-if-you-get-good-results.286887/
This has come up a lot on ET. Brokerage employees send copies of their trades to their firms. I have not heard of this being done.
moonmist - Interesting threads, but it seemed like it was pretty much agreed it could be done if someone wanted to take the risk of possibly being caught. Almost always the onus would be on the victim to prove it had been done, which puts them in disadvantageous position very similar to your 2nd link. rmorse - "Brokerage employees send copies of their trades to their firms" - doesn't prevent a 3rd party from assisting. "I have not heard of this being done." - same unequivocal statement that's often used on the subject, and doesn't mean it doesn't occur.
I am not trying to debate whether it does or doesn't occur. My interest is in feasible measures that can be taken to lessen one's exposure to it becoming an issue to begin with. "Traders/Institutions that move around a great amount of capital don't use retail brokers. They would use a broker-neutral execution platform (using FIX) like Bloomberg Tradebook, Fidessa, Reuters Trading, ITG etc. that use anonymous electronic trade matching systems." The above comment was posted on another thread about 6 years ago and seems to insinuate some platforms would be more suited to mitigating this issue through additional anonymity. Can someone more familiar with the subject further the discussion in this particular area? Does a higher-end platform an a different brokerage structure than a typical retail brokerage need to be used? FWIW - LastPass even uses a "Trust no one model" where even they don't have access to the encryption used to secure your passwords.
Let's apply a little bit of simple logic here. Let's break down your premise. How exactly is it different from an employee who has to pick between thousands of possible traders and "speculate" which one will do well going "forward"? How is this different from actually trading? Under both situations you are dealing with an uncertain future outcome. 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. You see, therein lies the rub. There is no way to escape it. One still has to take a "risk" about a future uncertain outcome whether it be copying some trader, picking a hedge fund or trading one self. Thus all men are created equal.
We use broker neutral platforms. From that, your clearing firm gets live drop copies for risk. We get live drop copies for risk. Your DMA routes has an order router that directs the trades to an exchange. You can't protect yourself from your concern unless you own the entire process. You need to be a self clearing broker dealer with an exchange membership. Then no one will see your orders.
Thanks for the additional clarification. Would you say the broker neutral platform adds some practical level of anonymity that couldn't be had in a monopolized environment like TOS, TradeStation or similar, where they serve as both the platform provider and brokerage?
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.
You have to decide who you want to be protected against. I can't say one is better than another, when it comes to your concern. I would not make it a deciding factor.