Companies copying successful strategies??

[barth3z]

Hello all,

My question is aimed at experienced or successful traders, whatever platform you may use.

What is stopping a spread betting company / broker, going thru the client accounts which are consistently profitable and directly implementing the client's strategies for their own ends?

Are there regulations which prevent this?

I know Richard Dennis is alledged to have said something along the lines of "I could advertise my trading strategies in the newspaper to the letter and still people wouldn't follow it" but would a disciplined trader? (Especially one with a much larger account size than an individual).

Could this be the eventual reason for "system death", when a successful strategy becomes too popular?

 

[Tawe Trader]

How is the spreadbetting company going to know client's strategy ?? all they will see is buy or sell entries.

They would struggle to reverse-engineer a profitable traders method, who's reason for entry wasn't 100% TA based.

There are also timeframes to consider, what may be one traders long entry off a 5 min chart may be another traders 20 min chart short entry.

I suppose they could devise some software to piggyback a profitable client when he/she excutes a trade and get in milliseconds later. They will have to get the exit correct as well.

Regards
Tawe

 

[arabianights]

how can theu tell if you're a good trader or just lucky?

 

[barth3z]

I understand what you're saying Tawe about it being difficult to reverse engineer a strategy but would you even need to go that far?

How difficult would it be for an institution to go thru their most successful clients of the last 6 months/ year (and by successful I am talking more about consistency rather than one off big gains) and just duplicate their entry and exit orders in future, whether that be done by software or broker?

Would it eventually kill a strategy?

I know if I owned a brokerage the first thing I would be interested in would be how the most successful clients were making their money!

 

[Tawe Trader]

barth3z,

I hear what your asking but say a profitable trader placed a long bet (electronically) and the spreadbetting company quickly copied it and to a much large scale say 1000's contracts, then it would push the mkt even more in your favour to the long side

I doubt that could be called system death, it would be more like system enhancement.

What you are talking about though, would be sort of opposite of the old rip-off of 'front running' the successful traders verbal order.

But as Arbianknights mentioned, why risk copying a 'lucky' customer when spreabetting companies already make enough profits off the majority of their clients ie the losers. Take IG Index / IG group, it was the best performing share on the FTSE 350 on Tues, up 8% on the day due to increased mkt volatility and volume. Increased volume = more profits.

 

[BSD]

I'd say that happens all the time.

When say a by now large buy side (eg hedge fund) client is pretty successful and consistent or even just large enough to move markets through their orders, the executing sell side, eg investment banks, would be pretty dumb if they wouldn't front run their clients orders for their own books.

Of course, if you are large enough as a client at some point you should and will be able to dictate conditions, ie if you consistently get bad fills there is more than sufficient competition out there clamouring for your business that will allow you to put an end to exaggerated monkey business.

Be it small accounts, small accounts that grew, or maybe even small accounts that kept growing and maybe even started their own hedge fund, your broker will use what you're doing.

 

[BSD]

PS: GJ wrote a good post on this:

http://www.trade2win.com/boards/for...6-forex-strategies-used-banks.html#post445304

 

[gooseman]

there are regulations in place for client execution too. plus you have the possibility that you're not seeing all of the flow. what's to say that they put a buy on with XYZ bank and then sell out with ABC bank?

 

[gooseman]

well you know what you can do with your hokey-pokey, off-exchange markets, don't you ;-)