Starting a pseudo hedge fund?

Discussion in 'Trading' started by earlyexit, Dec 23, 2010.

  1. Excuse my ignorance, but hopefully someone can point me in the right direction.

    I'm contemplating, on the request of friends and family, to trade for them. A hedge fund of sorts. None of these people are accredited investors with that much net worth. So I cannot start a "real" Hedge Fund. I'd like to basically open an account with money from each of them and trade. What sort of legal ramifications or tax implications am I looking at? I obviously don't want to break the law, nor do I want to pay their share of income tax.

    Can it be as simple as starting an LLC or some other entity and opening a trading account under that LLC? Does anyone know where I can go to find out more?
  2. I now realized I may have posted this in the wrong forum. If a moderator wishes to move it. Please do.

  3. If you do not hold yourself out to the public and have 15 or fewer ciients (friends and family) you do not have to register as a CTA (If you are trading commodities). Check the NFA web site for the exact rules.
  4. fjpenney


    Would you hold the exact same securities in each portfolio scaled based on the total account size? If yes, you could consider becoming a vendor on and having your friends and relatives autotrade off your trades. The legal issues of trading someone else's account are not a concern as your friends and relatives have decided to trade off your trades. You have to be very careful with legal considerations when trading for others.

    As is set up, vendors are really publishers (the same as a newsletter which has a list of stocks to buy). You aren't providing investing advice to individuals which can get you into trouble if you are not a registered financial advisor.
  5. Get an IB friends and family account.
  6. fjpenney


    krazykarl: By going the IB route are there any legal concerns such as dealing with an upset friend or family matter who wants to sue if the investments perform poorly?
  7. Thanks for the responses. I'll look into everything mentioned so far.

    I've thought about Collective2. But there are a few reasons why I'd rather not. First off, I don't want to feed money to another entity. Second, all my trading is algorithmic. And slippage is a concern. Especially on the faster trading.

    Thanks again.
  8. No need to register.
    Use an excel spread sheet.
    And be transparent in your transactions viz fees/taxes/profit/interest etc