you avoid all the hassles and expense with the ib account plus you are exempt from paperwork reporting hassles. no brainer.
how about offering the OP some other choices than the ubiquitous IB? Maybe the guy doesn't like them? Offer some other suggestions and let him decide for himself. What works for you may not work for someone else.
He has 2 choices -- IB or a partnership. The IB route would probably be best but if he wants to grow things a little bigger with time the partnership is an option. The downside to the partnership is the startup costs and the tax prep at the end of year. You can get one done for about $500 if you know how to do it yourself but with IB you can avoid the hassle.
i would assume he wants the best solution for his problem. ib is it. once he proves himself he can look at other options.
One thing no one else has mentioned so I will. BEWARE of pooling money with family and friends. It never fails in these types of situations someone will get pissed and someone will get screwed. Scenario 1: The account loses a large sum of the money (or possibly all of it). At least one person will want the entire portion of their investment back either claiming they didn't understand what they were getting into or that the loss was not their fault so they should not incur the loss. So the person actually doing the trading for the account (or operating the software in the case of an automated system) is usually blamed and either loses a friend or has the family pissed at them OR he can pony up the full loss and take it in the ass. Scenario 2: The account is making money and one of the members withdraws some of "his" earnings to make a purchase. Since he has withdrawn a portion of his money his investment amount is now lower than the rest of the groups yet he will likely expect an equal portion of the profits. So the other members either have to convince him of the folly of his thinking or let him take an unfair portion of the earnings. Either way as people pull out and add to the pool it WILL become an accounting headache. There are many more nightmare scenarios that I could go into but they all point to the same thing. NEVER mix business/money with family and/or friends....it might work for a time but it will eventually bite you in the ass. I would suggest that the 4 of you trade your own money in our own accounts and maybe have a little friendly competition to help keep you both motivated and trying your best and most of all keeping you all friends.
Ivanovich, thanks for the suggestion. Please may I ask, is pooling of money considered as one account? If so, then how is the process done? I had the impression that "pooling of money" is like "partnership of firms". Please clarify, thanks.
Sincere thanks for your active participation! Your advices have been very valuable, thought provoking with many points which I did not think of like the personal issues. I shall need to make a list of all the points you have mentioned for further discussion. Just out of curiosity, I wanted to know whether the discussion done so far pertains only to people USA or it can be applied to other countries also? Since, a number of traders can lack the financial resources to trade, so this option of pooling can help them out. Moreover, please give your opinions regarding "having a Partnership" or "Opening an account in the name of LLC (Limited Liablity Corporation)? Would the above help in the tax issues? Sincere thanks once more, looking forward to more inputs.
A few ideas. 1. Create shares. One share for every $10k invested. Profits are distributed according to the number of shares. 2. At the beginning, tell everyone that their money is "lost" money. You will do your best, but you will report to them in six or twelve months, and distribute any profits or "shares" at that time. In the meantime, their money is "gone", and don't bother to ask what is happening. 3. Have the account in a third party to whom the checks and account statements are sent. No one can withdraw money until the reporting date. Using this method, you should be able to use any broker. Just make sure that you can manage the trades even though your name is not on the account. Please note, I have never done this, so I cannot answer for any problems this may cause. Just some ideas.
Call your broker; call serveral brokers. Just because something can be done and may be legal does not mean a given broker can accomodate you on terms acceptable to the group. You should also consult with a CPA or tax lawyer regarding how the taxes are handled- they may want a family trust or similar to be structured.
sounds like a great way for members of this group to end up hating each other never combine interests unless absolutely necessary this statement of your gave me chills "Your advices have been very valuable, thought provoking with many points which I did not think of like the personal issues" if you havent considered the personal issues, you absolutely, positively are not ready to do this