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Don't Steal Money from Day Traders Before They Lose It

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Re: Don't Steal Money from Day Traders Before They Lose It

#21

Post by toomanybeersies »

Danieru wrote: post #14

This is notable because in the United States the form of leverage common else where, a contract for difference, is banned. Outside America it is much easier to run these kinds of bucket shops. The key is offering leverage, Kelly's formula suggests that stocks should be traded with a rather narrow band of leverage, under two in most cases. Yet these shops always offer leverage ratios more similar to forex. You would b…

IG will offer me, here in Australia, 5% margin on shares (20x leverage), 0.5% margin on forex (200x leverage), 0.5% on indices, and form 0.7-4% on commodities [1].

I set up a demo account a while back, and it's pretty impressive the amount of money you can quickly make (and lose) with CFDs. It was possible on a $30,000 capital to make (or lose) over $1000 per day.

I'm a pretty risk averse guy, and also can't be bothered doing enough market research that short term trading is a sensible idea, so I didn't end up investing any real money.

[1] https://www.ig.com/au/cfd-trading/charges-and-margins

Re: Don't Steal Money from Day Traders Before They Lose It

#22

Post by Bluecobra »

brisance wrote: post #16

How did the SEC discover this… did someone submit an order and it did not show up on the exchanges?

It’s in the complaint. They were using a third party vendor for both the live accounts and the training accounts:

In the summer of 2014, the firm that owned and licensed Platform A discovered Nonko’s training accounts scheme, after a technical inquiry from a Nonko customer revealed that the customer wrongly believed that his training account was a live one. On August 29, 2014, the owner of Platform A sent out an email blast to all Nonko customers alerting them that accounts starting with “TR” were training accounts; the firm then discontinued its relationship with Nonko, accusing Nonko of deceiving its customers.

Re: Don't Steal Money from Day Traders Before They Lose It

#23

Post by patio11 »

akanet wrote: post #8

This is so interesting - one wonders if this is strictly immoral. I propose this thought experiment: What if there was a version of this fraudulent brokerage that conducted this behavior in the open? Let's say their policy is something like, "You trade for real under favorable commissions and margins. If we decide via internal algorithms that you are liable to lose money, we will instead pocket your trade and credit…

Lots to unpack there, but the “favorable” margins and low required funding they offered are illegal to offer precisely because they preferentially attract poor, unsophisticated people and mechanically increase the likelihood of their trades blowing up.

This is why being the counterparts to all your client’s trades and using the public markets only as a source of random numbers to operate a gambling operation with a fig leaf of respectability is derisively referred to as a “bucket shop” and is broadly illegal.

Re: Don't Steal Money from Day Traders Before They Lose It

#24

Post by anonu »

akanet wrote: post #8

This is so interesting - one wonders if this is strictly immoral. I propose this thought experiment: What if there was a version of this fraudulent brokerage that conducted this behavior in the open? Let's say their policy is something like, "You trade for real under favorable commissions and margins. If we decide via internal algorithms that you are liable to lose money, we will instead pocket your trade and credit…

Its just wrong. For starters, you're advertising a service that you're not providing. Secondly, you're basically running a twist on a Ponzi scheme. Eventually it will get out of hand.... if your customers have an incredible streak of good luck but no real trades to back them - how do you pay them?

Re: Don't Steal Money from Day Traders Before They Lose It

#25

Post by anonu »

I was a trader at a big bank for many years. The tools and access I had there put me in a different class of trader that very few other firms or individuals can attain. There is such information and technology asymmetry in this business - its not worth trying to day trade as an individual. Buy and hold forever... only way to invest.

Re: Don't Steal Money from Day Traders Before They Lose It

#26

Post by patio11 »

nostrademons wrote: post #13
akanet wrote: post #8

This is so interesting - one wonders if this is strictly immoral. I propose this thought experiment: What if there was a version of this fraudulent brokerage that conducted this behavior in the open? Let's say their policy is something like, "You trade for real under favorable commissions and margins. If we decide via internal algorithms that you are liable to lose money, we will instead pocket your trade and credit…

Isn't this basically describing a counterparty? If they decide via internal algorithms that you are liable to lose money, they will pocket your trade and...well, not credit you 10% of the money you lost. I guess it's sorta like the brokerage having a right of first refusal on all your trades - they have the option to take the other side of the trade first in exchange for a 10% premium. If it's clearly disclosed, I do…

That’s not what the word counterparty means. You’re thinking “internalization.” An internalizer is not a counterparty to the position (“I think you will lose money”) they are a counterparty to the order (“I have extreme confidence that you are not secretly running Goldman Sachs from that eTrade account and so your sale of 2 shares of Google is unlikely to be based on a material edge, and therefore I am happy to make you a market in Google at a tight spread and indeed at a price better than any market covered by Reg NMS, whereas I would not make this offer to someone I knew to be Goldman Sachs because they would gouge my eyeballs out. I express no opinion as to whether you make or lose money on this position; I’m ambivalent as to whether you’re selling these shares because you’re unwisely timing the markets, because your daughter needs braces, or because you spent three hours reading their 10-K; none of these constitute edge and none of them mean I am unlikely to successfully make markets on many hundreds of thousands of similarly situated trades with an average hold time denominated in milliseconds.”)

Re: Don't Steal Money from Day Traders Before They Lose It

#28

Post by brisance »

Bluecobra wrote: post #22
brisance wrote: post #16

How did the SEC discover this… did someone submit an order and it did not show up on the exchanges?

It’s in the complaint. They were using a third party vendor for both the live accounts and the training accounts: In the summer of 2014, the firm that owned and licensed Platform A discovered Nonko’s training accounts scheme, after a technical inquiry from a Nonko customer revealed that the customer wrongly believed that his training account was a live one. On August 29, 2014, the owner of Platform A sent out an emai…

Ah, thanks for the update. The wheels of justice turn really slowly though. Some of those account holders could've been long dead before they got their money back. :(

Re: Don't Steal Money from Day Traders Before They Lose It

#29

Post by seibelj »

jpeg_hero wrote: post #10

Huh, got through the whole article without the author referencing the origin of the term “bucket shop.” Nothing new under the sun when it comes to market manipulation. I like the idea of a whole new generation of crypto market manipulators rediscovering techniques that haven’t worked in eh real markets in 100 years. https://en.m.wikipedia.org/wiki/Bucket_shop_(stock_market) The transaction goes "in the bucket" and is…

My understanding is that this is normal securities, not crypto. But it could also happen in crypto, just not this time
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