Performance fees

Discussion in 'Professional Trading' started by zf trader, Oct 3, 2006.

  1. As it becomes widely know what it is that I do I have started getting request to help people manage there CAD/USD fx exposure. I think there is a big enough market to reach critical mass just with people that I know or are friends of friends.

    Right now the way that it is usually done if done at all is with futures. Depending on which way the market goes either more money is wired in to make margin or excess margin is wired out.
    The broker/advisor gets paid through commissions and fees, which there are enough and are high enough to make the average ETer cringe.

    What I would like to do is hedge using long options. The idea would be to maintain a certain level of of delta and volatility. To do this it would be necessary to trade the underlying future to keep delta near the desired level. Rolling the long options up to higher strikes to keep near the desired level of volatility exposure would be the other necessary adjustment.

    In many market conditions these adjustments will cause out performance over a hedge made with a futures position. I would like to have this outperfomance make up the bulk of my compensation. I do not want to mark up fees or commission because it will make the product unsellable and really hurt the chances of outperfomance.

    Does anyone have any suggestions as to how to calculate a benchmark to be used to determine compensation? Has anyone set something like this up before?