Questions: managing other people's money?

Discussion in 'Professional Trading' started by Bhodie, Oct 30, 2002.

  1. Bhodie

    Bhodie

    I've been having a bit of success trading and I've been aproached by several people to trade their money. I'm trading a small amount for a friend as a test and he's interested in risking what is to me a considerable amount of cash. Currently I just dumped his money in my account and keep a record of how much we each have.

    1. Is there a standard share of profit for investor and trader?

    2. Do traders who manage money usually share the risk for losses?

    3. Should I open an individual account for him or should I open a different type of account for myself and keep my own records of his cash holdings?

    4. How often are profits usually paid out to traders?

    Any other advice would be greatly appreciated. Thanks
     
  2. well, first of all, if his money is in your account, and you turn a profit, you are going to get stuck paying his taxes. But, if you take aloss....so that needs to be changed to a partnership account which is very easy to do. The forms already have a place for you to fill in the percentage of each member of the partnership.

    Here's some standard futures account arrangements

    20 to 30% of the profits deducted quarterly
    20% of the profits and 2 to 4% of the gross deducted quarterly

    If it's over a million dollars, some percentage of the gross is good. If it's less than a million then a straight percentage of the profits is simpler for him to understand because you only get paid if he makes money.

    This only applies to futures, I have no idea about stock trading.

    You can't advertise or solicit customers unless you file for CTA or RIA. But friends and family are ok.
     
  3. I have managed money and you can take the suggestions for what they are worth.
    1. No standard share.
    2. I have run money and shared in risk of loss.
    3. If you do this in your own account under your SS# , you have incurred the tax liability. If you lose money he won't be able to use the write off. (I am no tax attorney but believe this is correct)
    4. When I ran money and there was a 50% gain in the account, I returned the gain to the client. What you are trying to do is to return the original investment as soon as you can. When you have returned the original investment and you are on house money, managing money is fun. Losing money for clients is the pits and I found risking only my own funds let me sleep better. You must also pick a number say account down 50% when you shut down and return what is left of the money.
    You should also check NFA and CFTC regulations to be sure you are stay in compliance. Both have websites where you can find 800 #'s.
     
  4. Bhodie

    Bhodie

    Fantastic posts by both of you! Thank you very much.

    I'm looking at taking a realitively small account, just large enough so I can trade 100 contracts a pop on the NQ. Nice round number ;-)

    I've currently been given just enough to trade 1 contract for the guy as I develop a longer track record and he gets to trust what I'm doing. His money is in my account which I'm not too crazy about since we're up about 30% since he gave me some cash.

    I do tax accounting so I'm somewhat familiar with the tax implications (I'm from Canada, so they are slightly different from what you're use to in the US)

    I'll look into the partnership account, I'm with IB and I'm sure that their eager service department is just waiting by the phone to help me :p Not.

    I'll play with some numbers, I'm kind of fond of 50/50 but I know that's kind of pushing it.

    What kind of loss percentage did you share? The same as your profit split?
     
  5. canuck

    canuck

    I too am from Canada, and would appreciate if you find any more information regarding this format in Canada, please let me know.

    I am also looking at setting up a similar arrangement for some people I know in the future. This sounds alright, if Canadian rules allow it.

    thanks
     
  6. ctrader

    ctrader

    unless you are registered financial professional.


    You can however, run your own private mutual fund without being registered. You can have up to 50 friends and family in the fund. You cannot receive any compensation for managing the fund. If you do receive any compensation you will be breaking the regulations.

    Not sure what will happen with joint accounts. Please post any more info you can find.
     
  7. TigerO

    TigerO

    buddy, george soros, the exclusively only billionaire trader in the forbes 500,

    charged

    15% incentive fee

    &

    1% management fee

    it's about results, not bs, ok?
     
  8. def

    def Interactive Brokers

    bhodie,
    you said you are with IB. Thus consider registering as a financial advisor and opening an FA account.

    Here's the link:
    http://www.interactivebrokers.com/html/financialAdvisors/financial_advisors.html

    and the basic overview:
    FAs benefit from low commissions and the IB Universal Account SM, which allows an FA to trade stocks, options, futures options on futures and foreign exchanges or their clients all from a single SMA. FAs may automatically charge a wrap fee based on assets, or a fixed amount. In addition, FAs may calculate a wrap fee and submit to IB for payment from the client's account. Monthly and daily statements are provided with the FA's name and address prominently displayed at the top.


    Tiger O, i'm sure there are other billionaires out there - just not as public :)
     
  9. TigerO

    TigerO

    hey, maybe one or two, no more than that.

    if you think you can keep a fortune north > 1 billion private/secret you're kidding yourself, i'm sell side bulge bracket, i never heard of more than one or two billionaire traders, they just don't exist.

    ask yourself why.
     
  10. TigerO

    TigerO

    #10     Nov 1, 2002