I had a guy approach me re: trading his money about 200k. My question is how should the profit be devided in percetage between him and me? Thanks in advance Tamvik.
Perhaps you could suggest that you use the standard CTA(Commodity Trading Advisor) fees of 2%(mgmt fee) and 20%(incentive fee). ..
Many traders like Victor Sperandeo and others that trade large private accounts use the 50/50 method. It beaks down this way. You and the partner spilt all profits and losses 50/50. This is a real incentive for you to do your best all the way around. I would never trade OPM any other way.
Thanks Vulture for your quick reply, I'd like to clarify a bit, I won't be acting as an adviser or a long term investor because of the current market situation. My plan is to make 2 or 3 trades a day no overnights, so I'll be involved daily watching markets. new2trading thanks for advise, is this your personal view? or is this what is generally done when trading someone elses money? Thanks tamvik
I've traded OPM, The best setup for all concerned was a straight 30% of profits. That way, in a losing month you don't have to deduct mamangement fee from account. Because it is very hard no matter how many times you explain it for the client to understand why you made money and they lost money. you start with 200k that is the old high. at end of month say account is 225k then 225k becomes the old high you deduct 30% of the 25K profit so now account is 217.5k next month account is 224k you deduct nothing because you haven't taken out the old high of 225k 200k is too small to really complicate things with a management fee. The purpose of the fee is to compensate trader for moving more money. They typically range from 2 to 4 per cent deducted quarterly. And don't forget, account is automatically shut down after 50% drawdown. Hope it goes better for you than it did for me, I am also on the never again trade OPM list.
That 2 to 4 percent is the annual management fee deducted quarterly. You can't solicate business unless you file for RIA or CTA If you like it, especially in stocks, a small management fee of 1 or 2% and no incentive is a great way for a young trader to develope a very lucrative carreer. because, you put together 5 or 10 200K accounts now, and over time that becomes 20 million under management, and so that is a cool 300k per year on top of your own personal account. If I was starting over, that is the way I would do it. Aggressive accounts are short lived and usually only appeal to younger clients with small investments. But a long term conservative approach grows as the clients income grows, and if you do well, you will soon be managing their family's and friends accounts.
I've traded other people's money on a sliding incentive scale that in which the percentage increased as the percentage of profitability increased. The profits were calculated at the end of each month and, based on the percentage return on equity, profits were distributed based on a certain percentage scale. For example, if the return was less than 0.5% in a given month, there was no payout to me. If the return was 3% in a given month, the payout was 30%. If the return was 5% or higher in a given month, it was a 50% payout. There was also a high water mark which meant that any monthly losses had to be made up before any profits would be paid in a successive month. Finally, there was a management fee of 2% per year, regardless of performance.