Trade History Security

                In the US, there’s currently a lot of confusion and paranoia resulting from the Patriot Act, and proposed acts like SOPA and PIPA. As upheld by the Supreme Court, the concept of “lawful interception,” meaning accessing personal information via wiretapping or monitoring your conversations on AIM, etc, turns out to be… lawful. Also, it has recently become known that AIM logs all chats on their system generated on platforms other than their own, and Microsoft and Skype can give governments backdoor access to your conversations. Thus, many people wonder how and where information about them is being stored and compiled. While we cannot speak with any insight on these issues, we at DAS do know where your trade information can be sent, and who it can be requested by.

                If you are a retail trader, and you are trading on margin, your broker-dealer is entitled to access your trade history, although this entitlement becomes a little unclear if you are using a cash account. They do still have access to your trade history, but why should they when you are only trading your own money? Also, as you can deduce, your clearing firm also processes your trade history, and they also store this history. While it seems like a lot of people can poke at your information, it is necessary as they are the ones processing your trades and providing margin. However, DAS has the role of facilitating this transfer of information. But rest assured, we have no interest in viewing your trade history or do anything with it besides sending it to your clearing firm. Furthermore, many of the processes in transferring your trade history from firm to firm is automated, so often no one even looks at the file until it reaches its destination. On the other hand, if FINRA needs your trade history, they must request it from the broker-dealer, who in turn, requests it from us. However, the SEC also may not request this information; they can only obtain it via a subpoena, which at that point, your privacy would not be your foremost concern.

                If you are a trader at a proprietary trading firm, the privacy of your trade history may be more of a concern. Many prop traders have their own strategies that they use at a prop firm, while some prop firms provide strategies for their traders. For prop traders who have developed their own strategies, they may be concerned about sharing their proprietary information. Prop firms provide capital (or leverage) for their traders, thus they are fully entitled to monitor your trade history, and they definitely actively monitor trade history due to the fact that it is their capital you are trading (or at least that is how it should work).  Thus, if you are a very shrewd and astute trader, perhaps a prop firm is not the right place for you because your trade history will be monitored and your strategy can be revealed. Also, the regulatory agencies can access your trade history via subpoena or more benign requests, but for the most part, they are trying to enforce compliance standards, not peek at your strategies.

                Generally, retail traders are not concerned about their trade history being private (unless they’re trying to evade taxes or something else devious), but for prop traders and other adept traders, their trade history can be very sensitive information. Thus, if you are a skilled and private trader, I would recommend finding a way to maintain a retail account, your broker will be happy with the amount of trades you are placing, they are often not concerned with your P&L. However, we do notice a trend of former prop traders opening off shore accounts to avoid the PDT rule and to use their strategies with smaller accounts. While we understand that not every trader can maintain an account balance of $25,000, so the PDT rule is inhibiting, we recommend exercising caution while opening an account at an off shores broker dealer if you are in fact trying to avoid the PDT rule. Because of the nature of off shore broker dealers, we have no insight into what they do with your trade history, so perhaps there are some risks involved for the more talented and private traders.

                Ultimately, the best way to keep your trade history secure is to try to blend in with other traders. Any flags you throw up, such as committing illegal activities or flaunting your excellent profits, will bring unwanted attention to yourself. Thus, my recommendations would be to learn how to maximize your strategy to operate in a retail environment; while you cannot gain anonymity (trades from dark pools still need to be reported in the end), you can gain invisibility by being seemingly commonplace. 

DAS INC: The mind of a trader by DASKaren

DAS INC: The mind of a trader by DASKaren: I have been involved in the financial markets for fifteen years and married to a trader for twelve years. During that time I have interacted...

The mind of a trader by DASKaren

I have been involved in the financial markets for fifteen years and married to a trader for twelve years. During that time I have interacted with many different types of traders and I believe I have gained a fair understanding on how traders’ minds work. Although I do trade occasionally, I would not consider myself a trader because I do not think like a trader. A trader has a very specific mindset that is different from most people. Most traders tend to have the following personality traits: highly ambitious, aggressive, gaining joy from high risk scenarios, and driven by monetary gains. It seems that people who exhibit one of those traits are naturally attracted to trading as a profession for the fact that it is a reward driven profession which satisfies their ambitions to success coupled with the excitement of high risk betting in the markets.

I have seen traders cross the line many times and it usually result in trading failures and huge losses. For example, if the trader thinks with his heart and allows his emotions to affects his decisions he becomes obsessed with gaining more even after he has met his target. He believes his formula for success is unbeatable and so he increases the risk factor on a position by doubling his shares or staying in a trade when he should have just taken his profit. As opposed to when the trader uses logic, strategy and has a regimental approach to trading in which he modifies his formula based on technical analysis and proven patterns in the market. It is important to note that the success of any trader in the financial market is dependent on his approach to trading. Of the two types of mindset, the trader who uses strategy based on technical analysis almost always has a consistent profit margin. The trader who thinks with his heart will approach trading as if he is a gambler at a table of chance and therefore may sometimes win a very large hand at the market but will also lose it very quickly. The formula based on his emotions determines when he enters and exits his positions; he is often blind to the obvious market indicators as to when it is time to cut his loss and reevaluate his strategy. He sometimes develops an attachment to the positions and being that he is thinking with emotions he will disregard logics and depend on hope that his positions will turn in his favor. I have seen instances in which the trader believes he is the reason why the stock is moving in a certain directions. He essentially becomes the market. Sounds incredible but the trader actually submerge himself so much into the activity that he actually loses sight of logic and reality.

There have been several studies done by accredited universities in which the psychological patterns of traders were studied and it was determined that most traders have psychopathic tendencies such as:
1. Considerable superficial charm, verbal facility and average or above average intelligence.
2. Unreliability, disregard for obligations, no sense of responsibility.
3. Untruthfulness and insincerity.
4. Inexplicable impulsiveness.
5. Antisocial behavior.
6. Poor judgment and failure to learn from experience.
7. Total self-centeredness.
8. General poverty of deep and lasting emotions.
9. Lack of any true insight, inability to see oneself as others do.
10. Fantastic and objectionable behavior, after drinking and sometimes even when not drinking--vulgarity, rudeness, quick mood shifts, pranks.

One study suggested it has something to do with the dopamine level of an individual and that traders tend to have a higher level of dopamine activities in their brains patterns. It has been widely known in the psychological community that sociopaths have higher levels of dopamine. Am I suggesting that all traders are sociopaths? Not really, but perhaps some do develop those tendencies later on when they begin to develop a higher percentage of success.
And like any activity that involves a reward system, trading the market becomes an addiction because of the appeal and the glamor of beating Wall Street’s hedge fund managers and high-frequency trading players at a game that was once exclusive to them alone. And if one adds in the allure of becoming rich overnight which by itself is often too irresistible to most people and a little bit of greed a trader can easily become another “Gordon Gekko” of the movie WallStreet, an ego-centric sociopath who believes he is never wrong and is infallible. If trading, like any addiction, is allowed to become an obsession, it normally results in failure. The key to becoming a successful trader is keeping clear cut goals in sight while not being ruled by greed.

When Gekko said those famous three words in the movie “Greed is Good” it really solidified the notion to many traders that greed is a necessary component to be successful. And to some extent, a little bit of greed, but more so a monetary motivation is necessary for success. Essentially if a trader can remove the tendency of greed and emotions from his approach, he will be consistent in building working strategy for success. This is why as a technology firm who caters to the trading community we believe that trade automation tools will help traders become better at beating the game. When the trader automates his strategies, the automated box is the decision maker and not the trader, removing the greedy impulses that affected the bottom line.

For more information on how to automate your strategies take a look at one of our partner’s page http://www.traderswired.com

Who does HFT hurt?

It seems as though there is an increasing amount of buzz around “high frequency trading.” Did it cause the Flash Crash in May 2010? Or perhaps it is why your P&L is negative. With only a vague definition of HFT issued by the SEC, both professional traders and the general public do not have accurate knowledge on the effects of HFT. Of course, all the voices who have anything positive to say about HFT are drowned out by traders who frequently lose because of their lack of skill, but need someone to blame. So my question is: who does HFT really hurt?

Does HFT hurt the exchanges? Clearly not, HFT increases volume and liquidity in the market. Yes, it does, in some instances, create “artificial” pricing for equities or whatever you may be trading. But keep in mind: does the price of a certain stock actually reflect anything concrete in the real world? At this point in time, for practical purposes, the market is an abstract horse race. If you cannot place a good bet, why blame it on someone else? The exchanges themselves greatly benefit from HFT, with increased volume and activity across all exchanges, it attracts even more attention from incoming participants.

Does HFT hurt individual traders? I suppose you can say that HFT may cause price manipulation, but a capable trader can figure out when not to enter a suspicious trade, or may even be able to use it to their advantage. Those who complain about HFT are often traders who would lose regardless of HFT. The market is a rough, unpredictable place. Yes, there can be relative stability in the market, but it is still only relative. Wouldn’t you be suspicious if it was easy to consistently make money on the market without extensive research and testing? Does HFT hurt investors? Of course not! They hold onto their positions for the long term, a price fluctuation in the matter of minutes does not have any bearing on their long term investment outcomes.

Does HFT hurt high frequency traders? Yes. While they can reap huge profits in minutes, they can also have astronomical losses in minutes! Not only do they lose their own funds, they are also faced by huge fines from the SEC. Also, it is here that I must note a glaring oversight on the part of the SEC. Is it HFT itself that causes anomalies in the market or is it the lack of sufficient risk monitoring? The SEC blatantly ignores the real problem.

The next time you hear something negative about HFT, put on your critical thinking hat. Does it really hurt you or is it an evolution in market participants? When facing challenges in your life, do you regularly run away and get someone else to punish the person who is more successful from you? Instead of complaining about HFT, a more reasonable reaction would be to look into affordable investments that put you on the same playing field as HFT. With advances in technology, especially those provided by DAS and its DAS|API, it is possible to catch up to these large entities. Our programming partner, Traderswired.com has affordable solutions for automating your well researched and tested strategy, giving you an edge in the market. 

Trading Offshore

Many traders are now looking at foreign financial institutions (FFI) such as offshore broker dealers in order to trade with new prospective. There are few noted reasons why someone would consider trading outside their country of domicile. For example, there may be trade restrictions which are not impose in certain countries and the tax benefits on income earned outside the country of domicile. However for an US person, trading at a Foreign Financial Institution does not offer much tax benefits. A US person is taxed on his worldwide income so he or she must report all earning even if it was not earned in the US. But despite that drawback, he or she will still consider going offshore because of the higher yield offered in buying government issued bonds which settles in a currency other than USD and is often only offered by firms outside the US. The highest returns are not offered to countries whose S&P rating is in the A’s such as the US government bonds. Countries with a S&P’s rating in the B’s often pays a higher yield than US products and with some as high as 15% yield. If you are receiving yield in that range it is worth the amount you would pay in taxes on that income.

Another incentive is that most FFI has competitive transaction fees and offers the same support and services you would get if you traded at a firm in your own country.

And then there is the benefit of not having certain restriction imposed on leverage and capital requirement. Some FFI offers leverage on small cap securities which are not normally marginable in the US Firms. There are firms that offer higher leverage based on capital deposit which is similar to the US Firms. And then there a few firms that offer higher leverage regardless of capital deposit or securities price requirement.

So why aren’t more people trading at FFI? I believe the answer is that most people like the idea that their money in under their mattress or resides in the same country. There is also the fear that the money is not safe at a foreign institution. And then there is the question of whether there is any insurance or security offered by the FFI that properly protects the investor.

But despite these concerns, the few who invests outside their country do it because the reward outweighs their concerns. And once they do the research on the FFI, it become apparent that facts are not always as tangible as looking at what your neighbor is doing from your backyard.
It is actually a misconstrued fact that Foreign Financial Institutions are more risky than a domestic financial institution. They have similar practices to most US firms regarding anti-money laundering and are often directly regulated by a central banking system.
Foreign Financial Institution were one of the first to implement know your client (KYC) practices and are less prone to identity thief.

The requirement to establish an account at a FFI is often more stringent in requiring the individual to provide a written recommendation from professional individuals such as Accountants, Attorneys, Law enforcers and Bankers. And as long as you invest at a FFI that has a good history of integrity, registered with a regulatory body and published updated financials information your money should be relatively safe.

DAS|Pro 2.0 vs. Sterling

When shopping for a special outfit, there are two options: buying something “off the rack,” or getting it custom made. You might be able to wear the “off the rack” item, but it is almost never a perfect fit, while the tailored article fits precisely. In the world of electronic trading, Sterling Trader came on the scene as an off the rack solution. However, DAS|Inc. has re-launched DAS|Pro 2.0, which is both an electronic and an advanced ultra low latency trading solution.

Of the two platforms, only the DAS|Inc. infrastructure is co-located at NASDAQ, and has a presence at NYSE, NY4 (locations of EDGE and CBSX), and Savvis (home of the BATS exchange). The co-location provides DAS|Pro 2.0 users with sub-millisecond trade executions, decreasing latency and effectively minimizing slippage, which is essential to all trading strategies. While Sterling Trader offers connections to multiple routes, the DAS|INC infrastructure is connected to over 100 routes, and is able to connect to any routes desired by its clients.

DAS|Pro 2.0 offers over 30 advanced charts. Additionally, DAS|Pro 2.0 provides technical indicators and trend lines, DMAr (Direct Market Access Routing, a proprietary smart routing service), back-testing, and mobile applications. Sterling Trader offers a capped API (maximum 5 orders per second). By contrast, DAS|API, available in both a C++ or .NET environment, provides stability while taking advantage of the ultra-low latency of DAS|Inc. infrastructure.

DAS|Pro 2.0 is a dynamic trading platform designed for all levels of traders, especially career traders. Given the comparison between DAS|Pro 2.0 and Sterling Trader, it is clear that DAS|Pro 2.0 is far superior in the areas of speed, execution, and customization.

Direct Market Access Routing

Always concerned with speed, DAS|INC has developed DMAr to further accelerate its execution speeds. DMAr combines aspects of the existing smart routing system in the DAS suite with multiple strategies to ensure order are executed at the lowest costs while boosting speed. In short, it helps you precisely enter and exit your trades, decreasing slippage. DMAr consists of configurable strategies, resulting in limitless combinations, but the two main ones are Ping and Split strategies. These strategies are completely customizable for the differing requirements of each firm.  

However, knowing the technical aspects of DMAr may not mean much to someone trying to optimize the infrastructure of their firm. Thus, an explanation of what these strategies are is not necessary, but rather, information about how these strategies are helpful is needed.

The Ping Strategy available in DMAr automatically sends your order to different routes sequentially until the order is completely filled. For example, suppose you want to buy or sell 1000 shares of a particular symbol. With the ping strategy, if the time in force is IOC (Immediate or Cancel), the order will be sent to your first configured exchange, and perhaps only 200 shares will be filled. Further action on your part will not be necessary; DMAr will automatically send the remaining order of 800 shares to the next exchange or ECN on your configured list. Perhaps, again, the order is not completely filled, so the remaining order will be sent to the next exchange or ECN on your list. The foremost benefit of this strategy is the speed at which your order will be filled. But another benefit of this strategy is that it can be configured to send orders to ECNs with the lowest commission or best rebate available, thus optimizing the cost of your trade. Using DMAr will definitely effect your bottom line. While boosting your speed to combat slippage, you can also decrease your commission costs.

Another strategy available is the Split strategy. This strategy automatically sends one order as multiple orders in smaller share sizes. Bypassing the ping strategy, the split strategy does not send the complete order sequentially, it first breaks down the order to smaller sizes and sends it via multiple routes. The execution time is boosted by filling multiple small orders simultaneously. Split strategy takes cues from high frequency traders. It capitalizes on one of their methods, allowing DMAr to give smaller traders the same edge high frequency traders have. Also, the previously mentioned benefits of the ping strategy apply here too.

Adding DMAr to the traders’ swiss army knife that the DAS suite provides will boost speed and profits for users on DAS|Pro. DMAr is fully integrated into the DAS suite, maintaining and boosting the ultra-low latency expected from DAS|INC. If you have any further questions about DMAr and how you can obtain it for your firm, please contact us via support@dastrader.com