Whats Stopping Retail Dealers or Banks From Brute Forcing a Clients Profitable Stgy?

Discussion in 'Forex' started by achilles28, Oct 5, 2005.

  1. achilles28


    I thought I'd post a new thread for this as it seems a topic warranting its own discussion.

    Since our ultimate goal as traders is to achieve profitability, shouldn't we be concerned the strategy that brings us this profit isn't being watched like a hawk by the gatekeepers that grant us access to the game (retail dealers/banks)?

    In theory, once the private trader becomes consistently profitable, the gatekeeper - at their sole discretion - can tip the traders hand and watch, record and analyze all the traders entries, exits and stops.

    It doesn't matter if we go through retail brokers or prime brokers on the interbank. Our gatekeepers at every level have the ability to watch and record our every move making the brute force or cracking of our profitable strategies a real possibility.

    That being said, and assuming a trader IS consistently profitable, is the reverse engineering of a successful strategy by the gatekeepers something we should be concerned about?

    Why or why not?

    If so, what can be done to minimize, avoid, obfuscate or thwart a gatekeepers attempt to brute force a traders strategy?

    Any discussion and opinions welcome.

    Note: I believe a good illustration of this stems from a hotshot hedge fund manager in the late 90's who bragged about his profits only to have Wall Street catch on, crack his strategy and front run his trades into the ground. I don’t know fundies name or details. Perhaps some of you do and can share?
  2. 1. Should we be concerned? No. Successfully cracking any but the most basic forex trading strategy is far more challenging than you might think. Particularly if it has significant discretionary elements; is largely non-discretionary, but with several adaptive parameters; or combines more than one type of component, e.g., trend-following and reversal.

    2. Frankly, who cares? Of all my trading-related matters, getting reverse-engineered by a dealer would have to rank near the very bottom. It's not something I ever lose any sleep over.

    3. If you are still concerned, spread your assets and trades across more than one account. End of story. That happens to be a good idea from a risk management perspective, anyway.
  3. sounds a bit paranoid to me and a rationalization to boot. when im on the wrong side of a trend it is always systems, but when im right the mkt is behaving rationally. get it?
  4. achilles28


    Those are good points.

    But if a system really starts turning a profit, why wouldn't a market maker or bank reverse engineer it?

    It all comes down to system profitability. The more profitable the system is, the more likely a broker or bank will attempt to reverse engineer it.

    I wouldn't be so quick to discount this scenerio as being a real threat in the event a trader develops a system *worth* cracking.

    Thankfully, if we develop losing systems or strategies that generate paltry returns, we wont have to worry about it ;)
  5. achilles28


    I disagree.

    In a world where market makers routinely gun stops, it's supposedly 'paranoid' to assume they'll steal in more creative ways - like cracking a clients system.

    Theft is theft. What difference do you think it makes to them?
  6. Open a second account at a different brokerage. Randomly implement large offsetting positions, especially before big new reports. A couple of 50% blow-ups is always good for shaking them off your trail. :)
  7. achilles28



    Although the idea of purposefully taking losses for a purely mechanical strategy is probably a good one.
  8. tomcole


    Paranoia seems to be the norm here.

    1. With the costs of computing dropping as quickly as it does and lots of smart people around, you have to assume that teams of folks at major universities, banks etc are looking at every stratgey under teh Sun to see whats profitable. To even think you're smarter than a zillion other folks is simply silly.

    2. IMHO, you want banks etc to follow your ideas. Its gives you momentum.:D

    3. If anyone can actually show proof that a small trader got picked up by a major bank and then THEY poured a gazillion bucks into the idea, I'd love to see it. :p
  9. achilles28


    Thankfully your here, to keep us all rationally sane.

    What speck of difference does it make if I'm capable or not?

    The original question posited a 'what if' scenario. To which you bravely replied I had no business contemplating such a thing.

    How about addressing the question instead of protecting your ego.

    It can also ruin the underlying market dynamic the original strategy was intended to exploit.

    Im not sure why you regard this as such an incredulous scenario. Independent thought free from the constraints of institutional tutelage has spawn some of the greatest innovations known to man - the A-bomb, light bulb, democratic government, etc.

    What makes you think advances in trading are anymore impervious to innovation and unorthodox interpretation than other disciplines? aka what the 'little guy' has to offer?

    A stamp of approval from a bank has no bearing on the lengths human ingenuity and creativity can scale. A 'smart guy' like you should know that.
  10. tomcole


    >> You miss my point completely. Anyone can innovate or do whatever they want. There is so much noise, that a small trader wont be noticed by institutions that have their own ideas, goals etc. There are countless tales of folks who are monster traders yet have their head chopped off all the time. If you are able to correctly anticipate price movements, all of your concerns go away, dont they?

    The small/medium size trader is generally more concerned about making sure his trading partner will open in the morning than if they follow his trades.
    #10     Oct 5, 2005