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Can brokers piggyback on their customers?

  #21 (permalink)

New York, NY
 
Trading Experience: Beginner
Platform: Vanguard 401k
Broker/Data: Yahoo Finance
Favorite Futures: Mutual funds
 
Posts: 1,046 since Jul 2012
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jdox View Post
Is there any reason that a broker would not be able to copy the trades of their most successful customers? Seems like it wouldn't be hard for them to do. Just curious.

Aside from 'copying trades', an unethical employee at your brokerage firm can also glean some information about the trader's strategy from their position monitor, e.g. it always places a currency hedge at 3 PM etc. But if you're not doing something naive like a fixed time trade every day, it is still difficult to get information out of it.

As mentioned earlier, most traders lose money, so it is (i) negative EV to copy others' trades and (ii) the opportunity cost is huge (earning brokerage commissions is risk-free, why would you spend time doing a speculative/risky business when you can expand your risk-free business?) Thus most brokers won't do it.

It is of course possible to identify your most successful accounts and, provided it does something naive, glean information from it, casually share it with your girlfriend, who recruits for the prop firm downstairs, and she talks about it unwittingly during a lunch conversation with her traders. This happens quite often. That's why the most successful/largest traders usually set up multiple accounts and cycle their trades through the accounts as extra insurance policy.

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