Sounds good. Nothing ventured, nothing gained. Just keep in mind the friendship might get axed if the edge unexpectedly deteriorates.
+100 This is exactly what I thought when I read the OP's post. Unfortunately you won't really know how it will affect you until you try. You also need to be aware that you may consciously or even unconsciously change how you trade because you are handling OPM. Good luck with whatever you decide but sometimes slow and steady really does win the race! Joe.
Shagi: 1. It's rude to solicit advice by starting a post and then criticize a sincere and well-intended response. I have alot of clients who are ET members (over 30), and maybe 35% of them have professional fund management experience - and my response to your post was reflective of that fact. 2. A website needs paying sponsors to survive - deal with that.
I trade $$$ for a friend. He begged me for years and I resisted. Finally he said "just duplicate the trades in my account that you do in your own account with it scaled based on capital in respective accounts". I couldn't really argue with him so I took his $$. Been 3 years now and I'm up 50% with his $$$ so he's significantly outperformed the market. But at one stage I had a drawdown in his account and it created a sense of anxiety for me. Ask yourself how your relationship with him will hold up if you do lose $$$. Second, scaling up isn't always as simple as some expect it to be. Last, if you have only 3 years full time you may want to consider if that's enough experience. I've been at it 15 years and finally took my friend's $$$ when I was at 12+ years.
Shagi, these statements raise some red flags. I'm assuming your account is a rather small account and so you aren't constrained by any kind of liquidity issues and specific hedging strategies that an institutional trader or fund manager would deal with on a regular basis managing large sums of money. Bone would have better insight into this, but my guess is that it's more the sheer volume of trading necessary to manage a fund that would potentially produce losing months, an example being the May 6th flash crash and subsequent market sell off making it very difficult in this regard. However, with a small account, a solid trader shouldn't have losing months. I trade a small account and struggle to pay living expenses, and I have losing trades and losing days, but certainly not losing weeks or losing months. If you have losing months trading a small account where liquidity is not an issue and you can manage money in and out instantly, what trading edge do you have that will help you handle the constraints of trading large sums of money. I don't consider leverage to be an edge, although many traders do, and this belief is often their undoing when a rogue move or a fast market gets underway.
Doji - My account is not big enough to worry about liquidity issues. Sometimes I even trade razor thin markets like palladium, oats, rice, orange juice and lumber and move in and out without a problem but sometimes do suffer slippage. In fact for most individual traders market liquidity depth is not an issue. However I don't believe that a small account should not have losing weeks or months. On average I have 2 losing months in a year, but its not significant losses. I could argue its more difficult to trade a small account than a big one because there is less room for error. I would agree if you say its easier to triple the equity in a small account than a big one. With a big account the concerns about market liquidity depth can be managed more easily becuase the trader has control on those issues. The strategy of getting in and out of a big position in a thin market etc. However a trader has no control on blowing out a small account through consecutive small losses which then add up to a big loss. It can happen no matter how good of a trader you are or how solid the strategy is. I'm happy with my strategy and its scalable to handle high account liquidity. When there is an opportunity and equity risk allows it I trade all tradeable markets be it softs, currencies, metals, indices, financials, grains, energy and meats in both US, Europe & Asia. At present I'm unble to take advantge of all opportunities primarily because of equity risk limitations which are related to account liquidity. With increased liquidity it would enabe me to enter every opportunity in any market at any time with an appropiate meaningful position size and maintain sufficient account liquidity as necessary to allow the position/s to mature and simultaneusly execute other strategies elsewhere. High account liquidity I consider it as an edge becuase I already have a winning strategy and now want to realise the full pontential. If plod along on my own I will get there some day but if someone is willing to chip in then well thats my question. Leverage is also an edge if its applied correctly with a winning strategy.
Shagi, most people will tell you not to do it, but I say, until you try, you will NEVER know. So somebody already said what I wanted to advise: Exactly. Set the thing up, but first try with 1/20 or 1/10 of the money for at least 6 months. This way you have time to get used to more capital and your friend has time to get used to possible losses. Then you can gradually increase the capital, as long as the trading goes well. Then if losses occur and he wants out, both of you can chalk it up as a valuable experience and be happy it wasn't the full capital. Sure, losses can occur when you eventually trade the full amount, but at least this way there is a "practice" period, and he can not say he didn't know what was involved...
Shagi was right. Don't be an asshole.. The very fact you continuously scrape for $$$ and paying clients and your constant attempts to look like you have important clients basically paints you as unreliable source of information. You wave credentials, but are very nebulous about proof. Tell you what - why don't you publish your personal trading results from your broker for the last 5 years. Then you might be "sincere."
Do not do it. For all the reasons MarkB said above, and for what you really mean in this quote. Trading is not for everyone. It is one of the most difficult professions. In order to achieve proficiency you have a mountain to climb. Your associate isn't willing to climb the mountain himself, and the extra pressure from him will come at the time when you are least able to bear it. Remember that the stress associated with having this extra concern could interfere with your mental balance to the extent that you are unable to trade. I'll say that again to be extremely clear: if something goes badly wrong, and you lose a substantial fraction of your capital (and by extension his capital), the stress which is brought to you as a result of him not fully accepting the risks and essentially wanting something for nothing (whether he is honest with himself about this or not) ... and in the context of a personal relationship ... may wreck your head to the extent you are not comfortable taking risk, and therefore it is impossible for you to trade properly. This could handicap you for long enough that you exhaust your resources and even if you get over it, you could spend years trying to scare up another stake to start over. With 10+ years of experience, and a hedge fund at arms length with full disclosure, accredited investors, and legal backing up the wazoo its fine. 5 years if you are an exceptional trader. Friends and family - practically never, unless its < 2% of their net worth and you don't need the money.