Cash advances to traders... hear me out. Regardless of a traders skill, he/she is open to the emotional factors of fear and greed. Whether your a prop trader, or retail trader at home (the types of traders this business idea would service) everyone makes the occational mistake of: 1. trading too big 2. not having stops 3. Over trading which can result in medium to big losses. Experienced traders are not immune to this, and its those traders i'd reach out to, who make those careless mistakes, but over all are profitable year after year. Why not go to a payday lender or bank you ask? Good question. Pay day lenders can only lend up to 500 by law, and in some states, pay day lending is illegal (that list is growing too with the negative press in this bad economy) Not only that, but most pay day lender require borrowers have a "job", and day trading probably wouldn't be considered a job to most. Even if they did, they'd charge 17.5%!!! Unless you have a good relationship with a banker, this is also probably out of the question. Especially now that the banks have been bailed out for giving high risk loans, giving a loan to a day trader of say 50k, would most likely qualify as high risk, and again not to mention, any loan from a bank would require a "steady job" On top of that, a lot of paper work, and time is required. I already have my own business set up, and could be in business within a few months. As an experienced trader myself, I see great value for a business like this. Say a trader has 120k in capital, and he's been trading for 5yrs with good steady returns making 8 to 10% a month, but one day makes a mistake and it cost him 20k (16.6%). It would take him an average of at least two months to get back to breakeven on his losses. ---- What my business would offer: I would offer these traders the capital they lost, in a fast, easy manner, at a low interest rate of no higher than probably 9.9%. Traders would not have to pay every month, but only on months that they were profitable, and a percentage would be taken out, to pay back their loan A trader would have to send a statement from the previous month, and the current month, verifing the amount of the loss, and five more annual statements showing that they're profitable, and able to pay. Their broker, or prop firm manager would also need to sign, to confirm the statements are legit. Money would then be wired through to their needed bank account. Of course other legal documents would need to be signed as well, but this is just a baisc outline. Like any loan, the collateral would be the amount of the traders account value.
I wouldn't want to start with any more than 25k in start up capital, and would divide that into 5k capital to no more than 5 traders. There is still some paper work and contracts that need to be made. btw, Are you serious or just joking?
It's like the state lottery and the casinos. You'd have to play up the "fun" side of gambling and donate some of your proffits to a good cause every year. I think there's a market for it definitely.
Pure idiocy. All other problems aside, why would you set the highest rate at 9.9? Does that come close to compensate you for your risks? I am also going to guess you don't know what moral hazard is.