Upon completion of passing the Series56 can I trade other people's money without jeopardizing the Series 56 license? I am thinking of working with investors, create a 12 month contract with a fixed monthly payment.
You have to ask your firm. You will be registered with them and they have to approval outside businesses. It sounds like a conflict of business unless you can post trade allocate your trading. But it is their call.
You cannot have outside investors when you have your license up with a Series 56, due to AML rules (anti money laundering). The money you put up with the prop firm that's holding your license must be your OWN money, and my recollection of the contract specifically states that you cannot have separate agreements with outside investors. (From your post, my guess is you want to use the investors' money and use those funds as your capital contribution, which is not allowed). If you want to trade other people's money, you can take the Series 65 which does not require firm sponsorship. You just have to fill out a U10 form and take the exam. Then you can start a hedge fund or work within an investment advisory capacity, since your Series 65 will be registered with the state. However, some states like Florida don't even require the Series 65 to start a fund, but there could be other requirements to run other people's money. Of course, you may still want to ask your firm about the rules just to be sure, or contact an attorney that specializes in hedge funds/advisory firms. One other avenue to consider is to trade with an IB account in a "friends and family" structure. I believe you can have up to 15 sub-accounts and negotiate the override/profit split with your investors without being a registered financial advisor.
Yes sir you are correct and well informed I do live in Florida. I will eventually have 2 accounts a retail (daily withdrawals) and a prop account. I will have my own funds for capital contributions, however I would like to increase my contributions with investor money with a prop firm since the leverage is higher. In Florida you can manage retail accounts without a license. You mentioned an IB Account, if you can elaborate it will be greatly appreciated.
First, if you have 2 accounts (retail and prop), then the prop is going to want to have your monthly statements of the retail account. I had to do this when I first traded prop, as I had a retail account with TD Ameritrade and had to provide "additional party notification" on that account to the prop firm. It is clearly written in the contract, so just be aware of it. Some props won't even let you have a separate retail account as then it creates more headaches for their compliance department. Second, your statement says: "...however I would like to increase my contributions with investor money with a prop firm since the leverage is higher." Read my response again. I already posted that you cannot have third party capital contributions due to AML rules. If you review the financial reports of various props via the SEC.gov site, then you'll find that owners of props are usually "Class A" members who pool their capital. Perhaps in theory you and the investors could join the prop as "owners" by becoming Class A members. I guess one way to find out is to call the compliance officer of the prop firm and just ask him/her. From the limited information in your post, I think your best bet is to look into an IB "friends and family" route, OR take the prop route with ONLY your own funds. Here's info on the IB "friends and family" route. https://www.interactivebrokers.com/en/index.php?f=friendsFamilyAccounts&p=ff
ScalperJoe is correct. You cannot comingle outside investor money in a prop account. Furthermore even if you could, you would be exposing your investor to 100% loss of capital if the prop firm blew up as that account is not insured. Regarding the friends and family account at IB, they are pretty strict. But the rules they defer to are your state regs. For example, in almost ALL states you cannot charge a performance fee if the account is not accredited and have at least 750k in the account. That means you can only charge an asset management fee. Again, each state is different. Joe is also right about executing the same trades in both accounts. This is a HUGE no no. You cannot trade a prop account and also execute those same trades in the retail account. Now most prop firms would likely allow you to keep your retail account open and you would have to send the statements to the prop firm. But if they caught you duping the trades they would not respond well to that.
Understood primary funding for prop firms ONLY !! Maverick74 your correct as long as you inform the prop firm they don't care if you have a retail. I filled out the application and listed both my Etrade & TD Ameritrade account, which wasn't a problem. Prop firms understand that with a retail account your money is immediately available as opposed to bi-weekly or monthly.
It's not about having the money "immediately available", as that's a side issue. If you are trading BOTH accounts, then there should be a key distinction on the strategy of the retail account vs. the prop account. In other words, since you are daytrading the prop account, then the trades in the retail account should be different (eg: mutual funds/position trading/swing trading ETFs, etc). Maverick74 already mentioned that you cannot trade the same symbols in the retail account. It's a sketchy area, and your compliance officer at the prop firm you're signing up with will have more details, so it's best to ask your firm on the specifics.
ScalperJoe it all depends on who your trading with. As I stated earlier when I signed up with a prop firm and was enrolled to take the Series 56 a year ago, having a retail account was not an issue nor was it scrutinized. They recruited me from retail and introduced me to the world of prop trading. I was lured in by the leverage and shorting capability.