trading firm startup

Just wanted to get some opinions on structure and setup of a new firm from people here. Been working in the banking/trading world for over 10 years and looking to go out on my own. Have a decent nest egg and mostly trade commodities. Will be moving away from the financial centers like NYC and Chicago.

3 routes are:

Start a trading company where I trade my own capital and build it into hiring other traders to come in

Start a hedge fund/investment firm. Good route if it goes well to raise investor money but very big task and a lot of non-trading duties to focus on

CTA - though my style is not really systematic. It's pure prop

Basically I want optimize around tax laws as well to safeguard profits and claim expenses of running the business.

Let me know what others on here are up to and what makes most sense. My goal is not to run some big hedge fund. Just want to make good money on my money and then maybe offer it out to investors partners. Have a good track record

Let me know your thoughts.

Thanks

 

What you are trading? Are you going trade the same strategies as with your firm? I believe trading small money as opposed to lots of AUM can be an advantage. If you are trading futures or forex on the other hand, there is very little advantage being small obviously. I thought it might be interesting forming a group where everyone trades their own money. I do mostly fundamental stuff in equities (investing, trading earnings, M&A, mostly smallcaps). I think in a group the trading apporach has to be very similar.

 

A great thing to think about in addition to tax and personal reasons for your location is time zone... Pacific time and Hawaii can be excellent if you like to trade the low volume shifts on some contracts.

I think A, B or a combination (maybe run your own firm, starting with yourself, and bring in others down the road) are the best options. If you have allot of money to fall back on, don't be too quick to jump into live mode if you don't have a system or method you're not trading already. IMO

 

Hedge Funds like Soros & Ichan returned their investors money due to upcoming regulations and you being a startup i.e. understaffed, probably don't want to spend a lot of your time filing paperwork thus investment firm is the way to go....
Don't know where you are moving but PST is ideal for traders.....

 

nycguy

if your a profitable trader your better off trading your own account less aggravation

 

100% trading your own money.

Why do you want to become a slave again? Trade your own money and grow.

 

I sent you a PM.

Bob

 

The three routes have pluses and minuses.

Trading company - this is probably the easiest to set up as you aren't trading public money therefore you avoid, depending on what instruments you are trading, SEC and/or CFTC registration and the related expense.

Hedge Fund - In addition to the comments above, unless you have a very good verifiable track record, and even with that, fund raising can be difficult. Many asset allocators will not look at any firm that has less than a 3 year track record.

CTA – Basically the same as a hedge fund with the only difference is that you trade products regulated by the CFTC.

In regards to tax efficiencies, you will need to make sure that you qualify for Trader Status. While there are no concrete measures, the IRS will look at whether you profit from price fluctuations as opposed to dividends or interest, your level of activity and the amount of time devoted to trading.

Feel free to contact me if you would like to discuss this further. My firm provides daily accounting services to proprietary trading firms and hedge funds.

 

Hi nyc_guy,

What was your position in the banking/trading world?

Did you trade prop, broker, sales, operations, IT etc?

I am off shore in the Middle East and the last time I worked in North America or Europe was on the LIFFE floor over 20 years ago so I don’t know what this structure is so can’t comment.

These two choices are the same thing. Generally asset allocators view CTAs as a subset of the Hedge Fund world.

IMO you must formalize and get an infrastructure in place and register etc or you won’t be able to pass due diligence from a serious asset allocator.

It does not matter if you have the greatest AUDITED track record in the history of earth unless you can pass due diligence it is impossible to raise serious coin.

An audited kick ass track record is meaningless if you can’t explain your trading methodology in a clear, concise & logical way or a serious asset allocator will never consider you for an allocation.

I hear you; I also hate admin and only like the cool stuff.

One of the ways around this is to take your stuff to an established hedge fund/CTA and let them do the admin for a cut of the action. Finding a way to make this happen is next to impossible in most cases and usually a horror show when it does happen.

Personally I know only myself and two other people that have ever accomplished this in a way where the ending was high fives all around rather than tears, hurt feelings, rage and lawsuits.

Or try for a position as an internal prop trader for a large off shore asset allocator. They do the admin and allocate you the money which is about as clear and easy as it comes when it happens.

The catch with this scenario is it is also very difficult but it does sound like you have the pedigree from your banking/trading career so that might be an option after you present an AUDITED track record. And then you have to can pass a brutal due diligence and peer review that is more interrogation than fact finding interview.

It does look like a bit of a catch 22 where you don’t want to go through the hassle of a hedge fund start up but you want the advantage a free call option of outside money which is a tough pony find in the race.

Anyway off the top of my head that is how I see it.

All the best,

Cheers Smoker