Trading Business

Discussion in 'Professional Trading' started by dougcs, Mar 27, 2003.

  1. Hello,

    I'm a stock trader and have made most if not all of my living this way for the past 8 years. Word of my success has spread to some family and friends. Some have asked me to trade on their behalf which I am willing to do.

    My question is do I need to obtain any licenses, permits, etc and is it advisable that I form some type of entity such as Corp or LLC?

    The group would be kept small, limited to under 20 people.

    FYI-My style is to use fairly simple techinical analysis to trade relatively low cap stocks. I have about 50 stocks that I trade usually having positions in 20 or so. I go both long and short and try to keep the total long/short dollar amounts fairly close. I limit the amount put into any individual position and use stops.

    I'd appreciate any advice or references that I might use.

    Doug S
  2. acatalano


    Hi Doug,

    FYI Interactive Brokers just started offering the following:

    Friends & Family Advisor Accounts
    A reminder that IB has introduced a new Friends & Family Advisor Account that allows an IB customer to manage 15 or fewer trading accounts (subject to state restrictions) from a single Trader Workstation. This account has all the same features as our existing Professional Advisor Account, but does not require the advisor to be registered. Click here to open a Friends & Family Account.

    Hope that helps :)
  3. If you're going to be accepting fees or any type of compensation besides a free dinner, you may have to structure an entity which isn't difficult. Since its close family and friends, less than 20, and sounds like you will have few problems (ie. arbitration), then a simple LLC might do it.

    Look into what else you may want though, like health care benefits etc.
  4. range


    Below is some more info from the website regarding Friends & Families accounts. See new customers/advisors/registration.

    Note the link for state registration information below. What I found while doing some initial legwork on the issue (I am no expert, check with a professional; and, I am not managing money for others) is that certain states, like Florida, are lenient and allow in-state small advisors in Florida to operate without being registered with the state of Florida. Many states require advisors who operate from their specific state to register with the specific state, even if all clients are out of state.

    Federal regulations allow advisors who have few (less than 5?) accounts to advise for clients outside their home state without being registered beyond their own home state, I believe. For example, Florida advisors need not register in NY if they have fewer than 5 NY accounts, I believe.

    If I were to begin to manage money for others, I would start by doing it as an indiviual, not through an entity.

    This might give you a start. I would not rely on what I have written without checking it out.

    See the nasaa link for information on whether you are required by your state to register with your state before taking on separately managed equity accounts.

    Professional Advisor Regulatory Registration

    Professional Advisors may be required to register with an appropriate regulatory organization. Non-US professional advisors should contact their local regulatory authority for more information.

    Registration requirements for professional advisors with operations in the US generally are as follows:

    Stocks & Options:

    SEC Registration:

    An advisor generally must register with the SEC as an RIA (Registered Investment Advisor) if you:

    Manage > $25 million in assets; or

    Serve as an investment advisor to a registered investment company; or

    If your "principal office of place of business" is in a state without an investment advisor statute.
    The SEC can be contacted directly at (202)-942-7820 or online at

    State Registration:

    If you are not required to register with the SEC, you may be required to register in your state. See for a listing of state regulatory agencies .

    Futures & Options on Futures:

    • You may be required to register with the NFA, unless you qualify for an exemption.
  5. Swipe


    If your good I'll put some change behind ya. What type of payout do you want?
  6. Thanks to all. It was a great help. The IB account sounds perfect for what I plan. As I do plan to charge fees, I'll look into the need for State registration.

    I have an LLC and will likely use it for this purpose and get my health insurance through it also.

    Thanks again. This is a great forum and I expect someday to meet some of you as I am considering taking one of Don's courses.

    Doug S
  7. I'm not sure how good I am when trading other people's $$$ but I think I'll find out sometime this year. I'm good with my own. I tend to be very conservative. For example, I had 15 trades today and 12 were losers but the others put the day a little into the + column.

    I may post some results once this all gets started in a few months. Again, I appreciate the help and comments.

    Doug S
  8. gms


    For all the jabs Don Bright gets, one thing he posted once that I recall and thought "why not?" had the gist of 'what the heck d'ya need the whole setup and performance fees and all that for? I've seen deals to split profits 50/50 written on a napkin. Keep it simple." Didn't Linda Rashke start out with an agreement like that?
  9. As I recall LBR was given money to trade by another professional trader. That's a little different from taking in OPM to manage. They tend to be amazingly intolerant of losses. Anyone considering managing money, whether it's friends and family or not, should protect themselves with proper legal documentation, plus making sure they are in compliance with SEC and state laws. The consequences of screwing this up could be personal liability for losses, fines and enormous legal expenses.
  10. I am not exactly sure what you want, but I very strongly recommend that you seek out some legal advice.

    There is useful info there for you. Pay a few hundred for a retainer and talk to a pro. It could save you a ton of time and effort in the future. It is very possible that you don't even need a complicated structure.
    #10     Mar 28, 2003