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Can brokers piggyback on their customers?
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Can brokers piggyback on their customers?

  #21 (permalink)
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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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  #22 (permalink)
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artemiso View Post
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.

This is the kind of response I was looking for. Thanks for the thoughtful answer!

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  #23 (permalink)
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jdox View Post
As I stated in my original post, I was curious if it was possible or if there was something in place to prevent this kind of thing from happening. All the brokers wanted to turn it into, "oh no that's not what we do, no broker would ever think of doing that". They act like I'm crazy for having the thought even crossing my mind.

Integrity, lack of interest, so generally no. You talk like brokers are thieves by nature.

I don't see what's the issue anyhow, it's only a negative if a broker front runs you. If a broker buys or sells after you then it's a bonus, so your question is pointless.

If they front run you then there is a rule in place as it's illegal.

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  #24 (permalink)
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PeakGrowth View Post
Integrity, lack of interest, so generally no. You talk like brokers are thieves by nature.


I don't see anything in any of my posts implying that brokers are thieves by nature. I simply asked if it was possible for a broker to do this if they wanted to. As I mentioned, if people had access to trades that some of the top retail traders are making, I would certainly think someone would be tempted to do it. Look at all the people who come on this forum trying to find trading rooms. Thats exactly what they want...someone to call the trades and they follow along.


PeakGrowth View Post
I don't see what's the issue anyhow, it's only a negative if a broker front runs you. If a broker buys or sells after you then it's a bonus, so your question is pointless.

I agree that it's helpful if they buy/sell afterwards. I would expect if they did it, they would front run the person, if able.



PeakGrowth View Post
If they front run you then there is a rule in place as it's illegal.

This is what I was getting at when I asked the question. I figured there must be some kind of rule in place but nobody else mentioned that so thanks for that info. Is there anyway that this rule is enforced?

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  #25 (permalink)
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jdox View Post
I don't see anything in any of my posts implying that brokers are thieves by nature. I simply asked if it was possible for a broker to do this if they wanted to. As I mentioned, if people had access to trades that some of the top retail traders are making, I would certainly think someone would be tempted to do it. Look at all the people who come on this forum trying to find trading rooms. Thats exactly what they want...someone to call the trades and they follow along.



I agree that it's helpful if they buy/sell afterwards. I would expect if they did it, they would front run the person, if able.




This is what I was getting at when I asked the question. I figured there must be some kind of rule in place but nobody else mentioned that so thanks for that info. Is there anyway that this rule is enforced?

In that case then yes, brokers have access to flows of their clients and the seniors have access to flows of all clients. The insto's are also very loud so I can hear what their lines are for the day.

It is enforced (at least in Australia). There are compliance systems in place that can detect that kind of stuff.

We are strictly told to enter in trades for personal trading after client orders, and we do that a lot - but this is generally due to us giving advice and then trading on our own advice (but we have to execute last).

In terms of front running someone who trades on their own behalf, it's next to impossible unless as @artemiso has mentioned, their trading is predictable down to the minute, but then that's not an edge - that's just someone trying to do business.

Trying to reverse engineer a winning traders system just by his executions would be too hard or impossible.

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  #26 (permalink)
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I know for a fact this can happen, not sure about brokers though. In prop trade floors they have a risk manager that monitors the traders positions. I heard of it happening in a prop shop in London that my Friend used to work for.
apparently they made software that copied the best traders Trades.
clever stuff.

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.


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  #27 (permalink)
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hello,

to my knowledge futures brokers can't do it, but forex brokers can do a lot of shaddy stuff.

They split theirs customers between A book and B book.

Winners are in the A book and all their trades are send to prime broker or hedged, lossers are in the B book and the broker take the counterpart of their trade as he knows it is a statistically winning strategy.

And I've also heard of C book, for the durably winning customers whose broker copy trade off, it's very easy to do, as is stop hunting, when you are a broker running a metatrader plateform for example.

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  #28 (permalink)
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it would be in the brokers best interest to help raise money for their superstar traders in their book. the more they trade the more the broker makes. its win-win-win.

a majority of a broker's time is spent servicing customers and prospecting for new customers. they may notice at the end of the day or the next morning if a client had a big day if they look at their statements. but the broker is more concerned the account has money in it than how much it made.

the whole business of futures trading is based on integrity, going back to the floor days when everyone was trading with hand signals. what you flashed in the pit was your word.

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