I think this is a GQ question (as I’m interested in likely real world actions) but Mods should feel free to move.
Basic scenario: I suddenly find myself zapped back in time to Jan 1, 2011. I have my laptop which has complete stock market information (open, close, volume) for the major stock markets worldwide in 2011. I start with $50,000 in my regular Roth IRA at Fidelity and want to double it every month so I end the year with something over $100 million.
Given the information I possess I could easily make trades that would net me to $100 million (let’s assume away any butterfly effect for now, i.e., my actions do NOT change the stock market numbers).
What I’m curious about is what would happen within Fidelity (or any other brokerage house) if a small scale Roth IRA suddenly began doubling every month. After all this is not normal behavior.
So my questions are, Who might notice? How long before they noticed? When might they contact me? Would concerns be raised about insider trading? Who might be alerted? Would someone start copying my buys and sales? If I wanted to remain off the radar and out of Fortune magazine as the “world’s best stock picker” would I be able to?
It would never occur to me to use an IRA account to do day-trading. Does it matter if it is an IRA versus a regular stock trading account (like Etrade or Scottrade)?
The advantage of a Roth IRA would be that I’d owe no taxes. But I’m fine with loosening transferring the money out to some other account. I’m mostly wondering when someone would notice me making so many good trades and what might happen.
I suspect that they would not notice your good trades but that when your account value reached a certain point your account would get flagged as one that should be targeted for “premium” services, various upsells, etc. At that point someone may review your account history and notice its meteoric rise.
There’s nothing illegal about doubling your money every month. I’m guessing a red flag might pop up at your brokerage, but it would be up to the authorities to prove you had inside information. As far as keeping your identity hidden - having a lot of money doesn’t mean the confidentiality agreements with your brokerage firm don’t apply. You would basically have to out yourself. I don’t think keeping a low profile would be too tough. Currently, I bet a tiny minority of people out there have even heard of oneof the largest trading firms in the world.
If you wanted to move large amounts of money around without attracting attention or moving stocks around, you’d probably want to operate in some of the larger futures or currency markets. You could swing $100 million around in the Eurodollar futures market without anyone blinking an eye.
Financial institutions have an obligation to report suspicious trades to regulators, so I’m fairly certain the unusual success would be noticed and reported well before the account hit $100 million. But as far as a timeline goes, that’s very difficult to say.
Even if you established an account that offered direct market access, you’d still need to operate through a broker-dealer. The exchanges don’t deal with individuals.
Once you start making trades in the $20M range, I suspect the SEC would be notified. IIRC their analysis software also looks for suspicious trades n advance of market movements; many of these movements are related to announcements etc. They want to see if people acting on these are basing it on inside knowledge. I’m sure their software also looks for suspiciously coordinated small trades from a number of accounts, and every other trick you can think of to hide the action. The SEC is not as dumb as they look (they couldn’t be!), and if it quacks like a duck, they want to see the webbed feet.
So there’s an SEC investigation of say, someone selling $10M of stock short the day before a bad profit announcement, or buying large quantity just before the takeover is announced. Is the simple suspicious stck order sufficient to get a supoena for the stockbroker to tell them who you are, your other trades, etc.? “Fidelity Mutual Funds” trading $5M of a stock might be normal business. Joe Schmoe trading his entire worldly assets against a stock that miraculously jumps the next day - very suspicious. At the least, they want to see if you are a front for one of the VP’s or a secretary in the legal department of that company. Anonymity would disappear the moment you made a big play that should only be obvious with insider information.
Are we assuming here that you’re forced to stick with one single brokerage house for your trades? Because otherwise a relatively simple solution would be to split up your trades with many brokerage houses, any extra fees from so doing be damned.
I can believe anonymity would go away. But does “innocent until proven guilty” still apply with the SEC?
OK, they figure out it’s me. And I am making millions, and I am not a secretary or anything else who has access to insider information. Can they come to me and ask “how do you know to make these deals?” and make me answer? Can I just tell them it is none of their business, or even that I am a time-traveller from the future? Do I have to prove it?
The best way to do it would be to make the kind of trades that soemone looking to win big would make. Buy some way out of the money options on stocks you know will sky-rocket, you’ll win huge, but it will just look like you got lucky.
You’d be surprised how unsophisticated the various regulatory bodies are. I work for a professional trading firm and see what appears to be manipulation and/or insider trading probably every week. FINRA is literally YEARS behind when it comes to looking into suspicious trading activity. The SEC had the Madoff fraud case gift wrapped for them by a fund manager that understood the math behind it and they still did nothing for years.
That said, suspicious activity doesn’t mean it’s illegal. They would have to prove you guilty of a crime. The genius math PhDs at hedge fund Renaissance Technologies have a track record that is “impossible” according to most theories of the markets. I’m guessing their strategies are over the heads of 99.99% of people, regulators included. That doesn’t mean they’re doing anything illegal.
Interesting idea and I like the idea of less work, after all what’s the point of 100 million if you had to work up a sweat. But I’m not up on what a money option would be on a stock, could you give an example?
Seconded…I’m less concerned by the SEC knowing it is me, and more concerned about whether it makes the evening news…I don’t want to be harassed in restaurants by neighbors/friends looking for stock tips.
You wouldn’t have to make massive trades or invest in stocks which have big jumps. Figuring about 22 trade days a month, that means you have to make 3% per day to double your money monthly. Since you have all the data, that should be no problem. It would be even easier if you invested in options. You could easily make 3% off of very tiny movements in the stock.
That’s not to say you won’t get noticed by Fidelity. But the govt. agencies would be hard pressed to say you have insider knowledge when you’re profiting from such small changes in the stock. You could even sprinkle in some losses along the way to make it harder to detect.
Stock options are a derivative that allow the purchaser of the option to buy (a call) or sell (a put) a stock at a specific price (strike price) on a specific date. The person that sells the option, does so for a price, but then is on the hook to make or take delivery of the stock.
See the options trade done just before Bear Stearns collapsed that allowed someone to turn $1.7m into $270m in less than a week:
But I’m fine with loosening transferring the money out to some other account. I’m mostly wondering when someone would notice me making so many good trades and what might happen.