arrogance isn't an edge. There's a whole different element to a drawndown when it's not your money. And when you're up, it's never enough. They think you're some kind of reacecar and it's ok to redline you till you blow. The collateral damage isn't a good time.
That's a very good article with the biggest difference between the two being freedom. When you manage OPM every decision you make gets scrutinzed whether an investor brings it up or not. Trading your own account vs. OPM is as different as night and day. You can't underestimate the psychological burden you place on yourself.
Exposing my trading journal in this forum comes pretty close to the psychological burden. I've stuck closer to my rules then I might have otherwise. I would have to explain any bad results. It's actually been good discipline enforcement.
Turtle also had the same problem, the equity swings were too much because people could not understand the nature of the system.
Nobody actually talked about the legal procedures for creating such an investment management/advisory firm? I hope to use my friend's friend's investment as an initial demonstration, if it turns out to be successful, there will be more investment and we can create a full-blown hedgefund...
The legal procedures have been discussed repeatedly on other threads. The main points as per my memory: 1. California is going registration even if neither you nor your friend have anything to do with California. 2. The CFTC registration can be postponed if you solicit fewer than 12 investors and keep to Qualified Investors ($$). 3. You will want to use your trading history in the future as your performance numbers so seriously consider using an account such as an IB incubator account. 4. Would it make more sense to sell your services as software/newsletters/educational products, and not get personally involved with their discretionary overrides. Don't depend upon my memory, however. The primary issues, really, are distribution of profits and distribution of losses. Example 1. Ron trades his aunts stock portfolio in addition to his own. Since he is helping to pay for her nursing home. Taking a share of the profits would only generate more tax liabilities. She doesn't really know if he is losing her money, and doesn't really care since she depends upon him period. Example 2. Don worked as a registered broker-dealer his whole life. He sold his accounts to the firm upon retirement. A couple of particularly personal accounts have come back to him. He doesn't take a stake in the profits/losses, but for John, it is making $5000/month trading profits. Don has changed software platforms, and this will change some of the trading for John. John is not happy with change. Don is not happy about being told how to do pro-bono work. Don offers that if John will pay the $50/month software fee for the old platform, he will reluctantly continue. John is not happy with change. Don is not happy. Friendship kaput. Example 3. Todd gets his millionaire friend Robert to stake him $25k. The understanding is that Todd is not responsible for losses. Soon the account is up $100k, and Todd wants to discuss their split of the profits. No lawyers, just friends. Todd takes out some money to payoff a credit card. The account then has a drawdown. The investor freaks, and calls the police. Fraud is pretty broadly defined. What does Todd's lawyer have to work with? Some verbal agreements? I think that the respondents have provided the more important point. How much do you need the leverage? How will handling OPM affect your trading? If you are willing to risk the relationship, how do you formalize this in a business agreement? After those decisions, search ET then search the SEC/CFTC to find out the actual regs. Even if there is no actual registration requirements, formalization helps. Everybody is easy and reasonable when they think there is easy money to be had.
I'm goin thru the same thing right now. My friends wife is a compliance officer for 3 funds and I've found out that it's not just as easy as everybody thinks. In a couple of months i'll start the journey. At first I couldn't wait to get it going, now theres trepadation because of the fact most that want to get invovled don't understand the stress and risk that I have to take on. you just point and click.....right? When I get all the paperwork done and up and running I'll post a thread here on the particulars of what it took. wish I could be more help now. It would take a whole page to post what I've learned so far w/ more to come.
So you want to be slut do you? Learn how to lie...This is your test....if you can screw your friend then you will make it...now if you can screw your family...you can call yourself a broker or a HF manager... Why don't you go trade prop if you want to break into the industry? ES
As you may know, I made the leap from trading my own money to trading OPM and on my first day I lost $4k. A pretty small sum for sure. You want to know how long it took me to make that $4K back? 6-weeks. Six friggin weeks. I've had loads and loads of +$4K days trading my own money so why did it take 6-weeks to make it back? Simple. I felt a great responsibility to trade OPM prudently and not make the 4k hole any deeper. Once I got back in the + column my trading took off. The 800 pound gorilla was off my back. You simply can't underestimate the pressure and responsibility of trading OPM.