The Battle over Trader's Intellectual Property

Trader's utilizing copy trading strategies have been at odds with free-riders, beckoning moral and legal questions of intellectual property.

Last week, an argument erupted over intellectual property for one of the DARWINs we list.

A party approached us claiming that a Darwinex MT4 account holder was matching trades by their signal service almost one to one – then listing a DARWIN on it. Since the terms and conditions of their signal service prohibit customers from reselling them, they demanded that we 1) revealed our customers identity and 2) de-listed the “copy-cat” DARWIN.

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For his part, we checked with our MT4 customer and he claims that, while the trading signals overlap 95%+ of the time, he’s making his own trading choices on the information available to him. So… what’s next?

Before explaining our stance, please join us for a relevant detour.

Why George Soros NEVER Sold Trading Signals

If you own a trading strategy, but own less capital than the strategy could profitably manage, you’re leaving money on the table.

How to not leave it (or at least leave less?)? One way is to sell trading signals.

For a set fee (e.g. 80 USD a month or 600 USD a year), you publish your trades. This then allows others to “harvest”, with their capital, the profits you can’t make on your own trading account for lack of personal capital.

It’s a win-win, right? Extra money reaches your bank account. If the signals really are any good, subscribers pour into the signal service. So… what if a billionaire buys signals for USD 600, and makes 40% a year on his billion? Well… the trader keeps 600 USD, and the billionaire pockets $399.999.400 – as agreed.

Which is the reason why George Soros won’t sell signals: they sell for an amount irrespective of investor profits.

Next.

What if a single signal customer – in breach of the T&Cs of the agreement – re-sells the strategy to investors? Admittedly, this is morally questionable… but fact is, once the trades are “open-source”, there’s no stopping it. Which brings us to signals/EAs second (and possibly worst) flaw: they’re an IP free for all.

Want an analogy? Anyone can buy a can of Coke for $1. Why does Coca-Cola NEVER publish the secret-formula with the can? Because anyone could then brew Wiki-Cola, tasting exactly the same – to compete with and erode Coca Cola’s business.

Why this de-tour? To highlight two attributes where DARWINs are superior to trading signals: They offer a legal share in investor profits AND they protect trader intellectual property.

What to Do in This Case?

Back to the signal theft case – to re-cap, these are the facts:

  • A signal service publishes signals for a fee – with T&Cs that prohibit their “re-selling”
  • Traders with access to the signals trade them on MT4 brokerage accounts
  • Customer(s) of Darwinex’s MT4 broker, trade 95%+ of the signals through us
  • Darwinex customer(s) use our service to list DARWINs on their MT4 accounts – presumably (but not conclusively) breaching the signal service T&Cs
  • The signal service – who legitimately looks like the owner of the strategy – asked that we named our customer so they could pursue him, and that we de-list the DARWIN.

Here’s what we will and will not do in this, and all similar cases going forward.

Protecting Investors

Investing in highly correlated DARWINs – presumably based on copycat strategies copying a master – is detrimental to investors and therefore traders and Darwinex.

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For this reason, expect algorithms that inform investors of the correlation across DARWINs.

When it comes to Darwinia, out of all strategies with a correlation to each other too high for investor comfort, we will ONLY reward the one with the highest score. All others will be disqualified the prize pot.

Protecting Traders

The conditions of the Darwinex offering are designed to protect trader IP. With us, you can:

  • Trade your MT4 account with our broker, as you see fit
  • If you wish to, list a DARWIN on live Darwinex MT4 accounts, knowing that DARWINs:
  • Are available to any investor with 50 bucks to invest, for a 20% success fee
  • NEVER disclose the trades – to keep your IP safe from free riders

Now, back to the signal service requests.

First: We are bound by our privacy policy to not reveal customers identities, and thus we won’t.

Second: They asked – and we initially agreed to – de-list the clone DARWIN. We wanted to follow the morally more compelling case… but then realized what a slippery slope this would put our business on. Let us highlight why.

First: The signal service claims the trade ideas are theirs. So does our MT4 customer. How do we know who’s lying? The signal provider seems to think that we can conclusively know who legitimately owns the strategy. The fact is, because they sell signals and this creates n-close to identical twins, it’s impossible for us to know who copies whom with 100% certainty.

Second: What if a Darwinex customer was to “draw inspiration” from the signal service, add his personal touch e.g. modify risk management, or take certain trades but not others, or add (good) trades of his own etc. to produce a DARWIN less than 100% correlated, and superior to the “original” one?

Third: Any resemblance short of 100% correlation is a case of shades of grey. On what fully objective grounds should Darwinex backtrack on its promise to list all customer DARWINs?

So here’s our stand. It’s a tough choice, but we stand by our offer that any Darwinex customer can list DARWINs on their live MT4 accounts.

We’re comfortable with it because if you’re selling signals and concerned that customers free-ride on them, rather than shoot the messenger (us), you can simply list a DARWIN.

Obviously, this involves foregoing the signal revenues – and everyone is free to make their own choices… as long as they face the consequences. In this case, a signal provider open-sourcing their most precious asset (their IP) for profit, is asking Darwinex to protect the IP in a contract he can’t enforce.

As we’ve hopefully highlighted, giving in to this request would force Darwinex to renege on its customer promise and competitive edge. With a sad feeling for entering into conflict, and knowing that this won’t prove popular to everybody, we won’t.

Know a Good Signal Service – Don’t Copy, SCOUT!

The twist to all this mess: trying to rip-off signal providers is bad business.

In addition to morally questionable, it’s not smart: If you try to copy-cat someone else’s (good) strategy, be sure that other copy-cats will copy-cat him and you until there’s no pay-off.

Why not scout the signal provider to Darwinex instead? In addition to his gratitude, you’ll secure 20% of Darwinex’s lifetime revenues by ALL investors in ALL DARWINs by ALL scouted traders.

Which brings us to the free option here – knowing that plenty of good signal providers sell themselves short of their worth… why not SCOUT them for your, their and investor benefit?

It’s THE moral win-win, and it pays too!!

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