Since, my family & friends would like to trade using a lump sum, however we can not do that by ourselves. Hence, we have been discussing on the pooling of money for the same. Among ourselves, we can manage around $100,000 with each of us (4 in number), pooling in $25,000 each. However, there are a few questions, which we would like to clarify, before we move on ahead, as follows: Is the pooling of money beneficial & legal? Since, we would like to have enough money to trade a trend following system combined with a bond and e-mini system to give us diversity. What are the legalities & paper work required among friends? How do we distribute the profits & losses so we can take care of tax issues? Please let us have your valuable feedback. Moreover, if you have some more points, which are not, mentioned as above. Please do let us know. The same shall be beneficial for all of us as many people out there just do not have the money to trade, maybe the pooling issue can help. Please give your comments, opinions & advice.
One account is going to require one SSN, and one SSN is going to be taxed. Unless there's a magical way to do it beyond that I'm not aware of. However, if one person pays the taxes and you trust everyone else to pay their share of the taxes, that can be easily handled with a check from each of the other three.
Is the pooling of money beneficial & legal? Since, we would like to have enough money to trade a trend following system combined with a bond and e-mini system to give us diversity.---->>>> It's perfectly legal. You can either setup a friends and family account with IB or you could form a small hedge fund. If you are interested, go to www.moneymanagerservices.com and read what they have to offer on their site. If you go this route, and trade less than $400k you do NOT have to register as a hedge fund but you do, interestingly enough, have to register as "an exempt hedge fund" with the CFTC. Funny how that works. What are the legalities & paper work required among friends?--->>> You can get all this through IB or the site mentioned above. How do we distribute the profits & losses so we can take care of tax issues?---->>> Never did this through IB but if you go the hedge fund route each of your family members would have a "pro rata" share on the interests in the fund. So, for example, if Dad has 25k invested in the fund he would receive 25% of the profit an incur 25% of the costs. You would K1 him at the end of the year and he would pay taxes accordingly. You are not required to withhold. Also, if all of your investors are family members I don't think their contributions count toward the 400k limit. You'll have to look that one up. Check out all the rules that fall under CFTC Rule 4.14. I think you'll fall under section 2a. A word to the wise, which is based on many years of experience. Once you start trading money for family and/or friends the game changes DRAMATICALLY! Take one hit and you may become very trigger shy. And, above all, make sure all of your friends and family members are ready, willing, and able to lose 100% of their investment w/o it destroying their relationship with you. Not trying to talk you out of doing this but you have to consider the realities of what you are thinking about doing. It's a full contact sport! Good Luck!
Interactive Brokers offers two types of account structures for individuals and small businesses: a Single Account and a Friends & Family Advisor Account for clients that wish to manage multiple accounts with one login.
pool the money, form an LLC, taxed as a partnership, for investment purposes, have things clearly defined and then open a trading account. Similar to commodity pool, hedge funds, investment club. Set up the proper. Do it right and avoid the hassles that will arise if you don't.
IB also has a Proprietary Trading Group Account if you are going to let different individuals besides yourself trade.