A timely revival of a thread. When I go back and read the posts, most guys are skeptical about there being a repeatable "edge", and a firm being able to replicate a method of trading. About 2 years ago I found something. A structural thing. Almost an arb. I rattled off over 100 trades with no losses, and maybe 8 scratches. In one afternoon. I still have the trading sheets. You could see me starting with one lots as I was unsure, then working to 3, 5, 10, higher. Fast forward 2 weeks from that day. My Introducing Broker (IB), who sees everything traded - he might be on the hook for some reason if a trader over-trades - calls me up as I'm doing this, and lets me know about an exchange rule that I might violate if I put in a certain type of order. Fine. I didn't need to step over any lines, and hadn't - but I knew he was lookin'. The capacity for these trades then mysteriously started to fill up. I continued, but at a much slower pace. Fast forward about 2 years from that first day (only a couple of months ago). An old friend of mine goes in to this IB to open an account. The IB is teaching my method to people as soon as they walk in the door. Showed it to my friend. Your broker stealing your repeatable idea will be a *rule*, rather than an exception. What exactly prohibits him from making this money? Nothing. Don't believe me? Get a standard form non-disclosure agreement (NDA) off the internet and ask your broker to sign. You will then hear the most beautiful, gentle language describing why he can't sign - and how "that doesn't happen here". Calling all lawyers. In the abscence of an NDA, does that privacy statement that all financial institutions must now sign, prohibit sharing of all personal financial information, including activity in your account? That would cover us all.
Stealing strategies is part of their deal, thats why the markets are always in an evolutionary status. Conceptually its not really different than a broker front-running your order. The problem with a NDA, is that you cant prohibit someone from using your strategy if they found it elsewhere, eg, MIT has hundreds of very smart folks with unlimited computing power looking at an infinite group of startegies every day. Throw in that Chicago just started a Financial Math progrm at the grad level, its almost impossible to hide your tracks. IMHO, if you can split your trades between cash and futures and spread them across several houses will you be able to hide. But for most smaller traders that a hard strategy to pursue.
These are some ugly answers but probably true. If somebody can f*ck you over, they'll do it and do it twice on sunday. Sorry to hear about your strategy Wilburbear. Those edges are the best kind. I'll PM you with some ideas I've got from other people about this. One thing that did cross my mind...don't ask your broker how they protect against strategy theft. I think the moment you ask them any questions on this topic, they'll start paying more attention to your trades!
Non disclosure agreement About the NDA. I really doubt you can fight a more capitalized opponent in court. Imagine trying to defeat Refco... Also, if they alter your idea slightly, it becomes their intellectual property. Then there is no case. Anbody arbing or doing automation should probably be concerned. Thank you all for answering my questions and PMing me. It has been enlightening.
ib has a prop trading firm called timber hill..... you don't think they watch order flow.... look over your shoulder.... they are out there... be afraid.. be very afraid....:eek:
How about this--------2 trading trading friends( just for arguement in my case the "friend" is my son ) open 2 separate accounts in the same "IB". During the trading hours I open a trade in my account and he closes it in his account when my strategy says "exit"(by then we both holding an open trade, 1 long and 1 short. say long=10906, short=10952), I flat all positions in 2 accounts by market close orders. Can the "IB" steal my strategy? In real trading, only me pulling the trigger. Give me some feedback ETers, please.
Just a thought (didn't read through the whole thread, so someone might have proposed it before me): The starting post assumes that a strategy stops working because of someones access to the threads. Not just that, it also assumes that the trades are being traded against. If I had access to the trades of a consistently profitable trader (maybe not an order book scalper, but any other trader), I would not trade against his trades. Rather, I would try to enter in the same direction and as soon as he enters his trade. When he exits, I'd exit. I would assume anyone who'd trade on this kind of "inside" information would do the same thing. The effect would actually be benificially to the first trader (creating momentum in the right direction). So, I don't buy the theory basicly. Edit: Arbs is not the result of the information about the trade being placed, but the method for selecting the trade. If you disclose the arb concept in any way you will of course see the arb opportunities disappear. However, all arbs are known to disappear quite quickly - keep that in mind.
well, if u extend that logic long enuf, every guy is trying to front run the other guy, or the slippage on entry and exit become so detrimental that the edge dwindles down to nothing. Something high frequency or relatively illiquid would not sustain too much competition since it cant accomodate all of that buying and selling pressure simultaneously. Senor Zen
learner- sure, it would work. The drawback is the amount of accounting oversight you'd have to apply to both accounts.
http://www.thestreet.com/markets/ma...s/10212181.html Saw this strategy theft story in another thread. Seemed relevant.