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At the moment, there is only one option for system managers to control the subscribers: this is simply a “Max number of subscribers”. However, this system unfairly benefits “whales” with large accounts, who can heavily scale their system allocation, yet they will still be paying the same monthly fee as a small account.
Furthermore, this can become an issue in popular systems. In particular, collective2 works in quite a different way to a traditional “fund”, where money is pooled, allowing managers to accumulate/distribute their positions slowly without impacting markets.
Instead, c2 has all subscribers performing the same action at the same time. Obviously, this is what c2 is designed to do, and has many great advantages (e.g. the money can stay in users accounts, their is clarity about the trades being made, it is easy to switch between systems etc etc). The downside is that popular systems can start to have an impact on even relatively liquid markets, particularly stocks. This is a situation where subscriber control can become problematic. Essentially, each subscriber takes a “slot” in terms of system availability, up until the point at which slippage becomes a problem and subscriber numbers need to be capped. However, some subscribers may be taking up 10 or even 20 times the amount of liquidity as other subscribers, but paying the exact same fee!
Not only does this seem unfair, but it doesn’t seem to be ideal, and the only people benefiting are the whales (who already have large accounts!). Personally, I think it is far more rewarding to be growing a small account than a large one, and I think that charging structure should reflect the level of scaling of the subscriber (or at least give managers the option to do this). In fact, such a system would actually reflect the “industry standard” of 2%/20% (or whatever). Furthermore, such a system would in fact benefit collective2, in terms of greater revenue.
Anything else other than what c2 is doing now require the developers to be series 7 and 66 licensed. And Matt and he’s team to be series 24 principles. Any thing individual or small group based % of asset fee requires way too much regulatory and compliance for c2.
You can start many different strategies that can tailor maybe a smaller group or small balance accounts. C2 is kinda of a subscriber service, which is a lot less regulated compare to a hedge fund / advisory accts
I have a feeling whales aren’t generally autotrading since the slippage itself is a huge cost to following the system – potentially far outweighing the monthly subscription cost on even a single trade. Most probably don’t mind trading on a slight delay to ensure better price control. And if this is the case, then they either end up adding liquidity in the form of limit orders to try and match the price or entering a market order sufficiently long enough after the initial trade to not take up liquidity for the autotraders.
If the remaining whale subscribers are still sucking up too much liquidity you can also break up an order into small parts and randomly distribute them over a short interval of time.
Because for regulatory reasons there is no way a vendor can restrict how much an individual subscriber can scale up to, however, I believe C2 could do just that by limiting to how much a subscriber can scale up to for each individual system. It would have to be tailored to each individual system and C2 would have to create the infrastructure to monitor compliance.
that is totally fine. you have to treat everyone the same or give everyone the same options. anything else more FINRA consider as advisory or financial advise. C2 can or cant allow certain system to be scaled or not. if you think that’s something your subscriber will benefit from, i don’t think its a really HARD change for the coders. but i don’t see how will that shove your liquidity dilemma.
Which im surprise with trading XIV/VXX there is much slippage or liquidity issue. if its options or low float stock then its a different story. the most slippage in XIV/VXX is pennies or 10 cents at the most, I have seen institution lots coming in to buy or sell last week and early this week around 70k shares in 15 min increments. those shares filled just fine, didn’t see any large slippage at all. of course I have No idea the amount of subs or total AUM under your strategy, but with XIV/VXX from what I known from trading VIX ETF almost since inception. until your “c2 herd” coming in with more that 100k-250k shares per 15mins, I wouldn’t worry about liq issue. With my strategy since I trade options, sometime it has issue with liquidity due to not many strikes can fill a option lot of 350-800 contracts at 1 time. So I trade in increments or random lot size to throw off the market makers. but then slippage can still happen due to spoofing and underline movements. but at least I know I will get hit with slippage with my subs too.
Yes, it seems like liquidity is an issue, particularly for systems that are trading things like options, less liquid stocks etc. Therefore, it seems like some sort of more “fine-grained” subscription control might be beneficial to a range of managers.
Another way could be to set a “maximum scaling”, which again doesn’t seem to fall foul of regulations, and would be easy for c2 to implement…
25bp is a lot? XIV move 10 cents in less than a min. He’s not a scalping strategy. If you look at he’s fills, most of them are off by 2 cents within same broker. A 7-8 cent spread with a different broker.
If you split up the trade then the market might move quick also. Don’t think there is a perfect scenario.
Volume or transaction based compensation is not permitted based on the current model. With regards to liquidity, strategy managers do need to be aware of the liquidity of the markets and instruments they trade given C2’s order management processes. That said, it is unlikely currently that any strategy will have a noticeable impact on any liquid stock, ETF, Forex, or futures contract.
Also of note, the fill order for subscribers is randomized so levered subscribers do not always effect other subscribers and over enough occurrences the average fill prices normalize.