Trading for friends and family

Discussion in 'Professional Trading' started by Sayid, Nov 1, 2011.

  1. Sayid


    Hello. New to the forum, but not trading.

    I have friends and family who would like to me to trade for their account. IB has a friends and family account where you can trade as an unlicensed "advisor". I have not seen this with other brokers. IB will allow you to manage less than 15 accounts and charge a fee.

    Does anyone have experience with this?

    What about legality?

    Many thanks
  2. I am interested in the same question and would appreciate anyone sharing their experience.

    My current understanding is that IB can bill the client accounts directly on your behalf (say 2% of asset and 20% of performance fee) on a quarterly or annual basis. You can also choose to bill the client directly.

    What fee structure do you have in mind? I am thinking of a tiered pricing scheme like the following:

    0% of AUM
    10% of gain for 1st 10% of return;
    20% of gain for 2nd 10% of return;
    30% of gain for 3rd 10% of return;
    40% of gain for 4th 10% of return;
    50% of gain for return > 40%.

    So if I achieve 50%, it will get me 15% and client 35%. Is this too complicated?

    The upside of IB's FA account is transparency. Clients see what you are doing all the time and can close the account anytime they like. If you are worried about them reverse engineering your strategy, then the transparency is a down side.

  3. bone

    bone ET Sponsor

    Legality aside, it will strain relationships whether you are successful or not. Lots of passive-aggressive manipulation and fear/greed coming from loved ones who know absolutely nothing about trading and who cannot even remotely fathom how difficult it is to be consistently successful.

    There is an old proverb: "no good deed goes unpunished."

    Just trying to introduce some rational considerations into the discussion, and in any event the very best of luck to you.

    Whether it is one or fifteen ( the max number for SEC registration ), I would definitely have them formally sign a strongly worded boilerplate agreement about the risk they are taking on, and the fact that they should consider the investment at total risk and essentially as disposable income. You will be better off with an "eyes wide open" approach. They will hound you relentlessly unless they completely understand that they will likely lose most of it.

    Because they are related, you will definitely trade differently whether you care to admit it or not. You will become more defensive, and that is not necessarily a good thing. Your performance metrics will be different trading a relative's money.
  4. newwurldmn


    Talk to a lawyer if the numbers are big enough. If you lose money you might be personally liable to cover the losses without the proper documents and due diligence in place.

    Everyone is a friend until money is lost.
  5. dtan1e


    ask them what happens when u loses all their money
  6. bone

    bone ET Sponsor

    The best structure for his situation is probably an LLP, where distributions are made on a K-1, but it terms of his personal financial/fiduciary liabilities the protections are essentially the same as an LLC.

    You will spend at least $10K to set it up properly.

    And yes, your relatives will sue your ass. They will be more aggressive and belligerent in many respects than they might be with a third party. Families can frequently be like that.
  7. Exactly what bone is saying. Can fully relate to that. It's pressuring, damn pressuring. No one likes to lose money. Outsiders do not know how it's like to lose money. You don't know what you are getting into. I just give advice so that the actual trading decision is not on my side.
  8. Grinder


    Do what most do and call it a loan with a set interest % you will pay them, make it better than the bank rate but not to big and guarantee they will get their capital back plus whatever interest they would've made if put in a bank account. That way no one gets upset and everyone wins.
  9. Eddiefl


    Bingo. +100.

    Find the highest interest rate in your area or State, highest CD or money market. Tell them they will get that at a fixed rate, quarterly or semi-annually or double it. (which I think CD in my area are paying 2.0% per year now, max)

    Keep it simple, very simple with relatives. OR like people above say, things can get stupid.

  10. Maverick74


    This is an awful idea. You want to convince them they are making a risk free trade to earn a yield? And then what happens when he blows out the account and they ask where their money is? Is the OP going to refund all their capital? No, do NOT do this.
    #10     Nov 3, 2011