What is the best way to trade friend's money ?

Discussion in 'Professional Trading' started by ASTrader, Jan 2, 2008.

  1. ASTrader


    I have a very good stock market options trading system! My friends want me to trade their money using my trading system!

    What are different ways to do it ? What are possible tax complications ?

    Thank you for your help! :D
  2. Friend account at IB

  3. He may not be your friend for long...be careful.
  4. Jachyra


    Trading a friend's account is almost always a losing proposition because you typically have nothing to gain. If you do well, you're usually not taking a big enough cut (because they're friends and you're doing them a favor) to offset the risk of doing poorly and ruining your friendship. If you do decide to make the mistake of trading accounts for your friends and/or family (which seems to be a right of passage of sorts for most traders), then I would suggest doing it at a place like IB where they'll do all the bookkeeping for you (assuming you're planning on collecting some percentage of the profits). Thats usually the source of a lot of hard feelings (aside from trading losses of course).
  5. Keep being friends ! Experience from being 16 years in the industry...:)
  6. ark


    Friends and money don't mix. But if you truly know what you're doing, then go ahead and do it.
  7. Friendship is friendship, business is business, make sure you have a written agreement in place just as you would for any business arrangement, it prevents potential misunderstandings on both sides and may save a friendship (or litigation!) if things go wrong.

    As someone else mentioned, IB is good for trading multiple accounts, they offer Friends & Family Advisor and a versatile PAMM (Percent Allocation Management Module) or LAMM (Lot Allocation Management Module) which makes it easier trading and accounting for multiple accounts. Each friend has their own individual IB account so they are responsible for their own tax liabilities as far as I know.

    The worst thing I found about trading other people's money is they drive you mad wanting to know how their account is doing! Have an accounting period (monthly/quarterly/annually) so they leave you alone to trade, nothing worse than dreading a call from a concerned client when you're in the middle of a losing streak!

    And most importantly don't forget to make them absolutely fully aware of the risk involved.

    On top of all that, trading other people's money isn't suitable for everyone and requires additional discipline and psychology because it's easy to feel pressurized to make money for them, especially if you've exaggerated a little when telling them how lucrative trading can be. :)


    I don't know how other brokers set it up but at MB Trading you just have a linked account (to your own) where the "friend" has signed a Limited Trading Authorization form. Any tax consequences are that of the "friend" as the account is in his/her name.
  9. Watch out. If you lose money then your friendship could be lost ass well. If you make money then your friendship may get better. lol. All in all, I like seperating the two.
  10. ASTrader


    Thank you everyone, for your valuable advice! I will think through before I take any steps in the direction of trading my friends money! I appreciate your input! :)
    #10     Jan 3, 2008