How Do You Begin to Manage Other's Money?

[Dinerotrader 10]

Here is a scenario:

You consistently make money trading commodities. You have a friend who wants to give you $100k to trade and only wants 15% return on his money per year. Nice possibility there to make some money. How does that trader legally manage his friend's money in the easiest(least amount of red tape) way possible? My general understanding is that you can get a series 3 license and become a Commodity Pool Operator. That is the gist of my current understanding.

 

I'd be interested to hear from those that have walked this path or can provide a lot more detail on this process and what it takes.

[UrmaBlume 10]

Here is a scenario:

You consistently make money trading commodities. You have a friend who wants to give you $100k to trade and only wants 15% return on his money per year. Nice possibility there to make some money. How does that trader legally manage his friend's money in the easiest(least amount of red tape) way possible? My general understanding is that you can get a series 3 license and become a Commodity Pool Operator. That is the gist of my current understanding.

 

I'd be interested to hear from those that have walked this path or can provide a lot more detail on this process and what it takes.

 

You can form a pool which is really just a trading account and if you don't advertise yourself as a money manager and if there are less that 14 members and less than $400,000 dollars under management you can go on line with the CFTC and file an exemption and you will be legal. Filing the exemption is quick and easy and free.

 

The last one of these that we did we formed an LLC registered in Nevada and registered the exemption with the CFTC.

 

Whether you form the LLC or not you will want to create an operating agreement that makes a statement of the risk involved, provides for liquidation, lays out your share of the profits and how and when they will be paid and has the invester sign that he understands the risks and authorizes you to make the trades.

 

Legal, easy and inexpensive and you are on your way.

 

Good Luck

 

cheers

 

UrmaBlume

[fxstmt 10]

You could also "publish signals" with Collective2.com or StrategyRunner.com.

The trades are placed in the client accounts, you get paid, and you never take

possession of the client's funds. Hence, you don't need to be registered, and no

one can ever say that you "Madoff with their money".

[Guest Tresor]

Just my two cents:

 

I contcted both NFA and CFTC for this matter some time ago. I am a non-US resident and my clients are also non-US residents. The answers I got from both institutions was:

 

''Dear ....,

 

As a foreign money manager with only foreign customers, you would not be

required to register as a CTA. In other words, the regulations outlined

in the Commodity Exchange Act would not apply to you and,

therefore, there is no limitation imposed upon you with regard to number

of customers or amount of funds.''

 

So it seems that US-based money managers are discriminated against non-US money managers in US

 

Pure nonsens and communism: the government decides who can be a money manager instead of the market.

[SIUYA 11]

Tresor - what does the regulator in davey jones locker say

 

I would be more worried if the US regulator thought they could regulate people outside the US. There are two issues...... where your management company (or you are based) and where the clients are based.

[Guest Tresor]

Tresor - what does the regulator in davey jones locker say

 

The regulator in Davy Jones' locker say nothing about this. There is the act of securities market but this act covers brokers' activities. Brokers in Davy Jones' locker however demand a power of attorney signed by my clients in which the clients authorise me to trade their accounts.

 

I would be more worried if the US regulator thought they could regulate people outside the US. There are two issues...... where your management company (or you are based) and where the clients are based.

 

You know I just wanted the US authorities' interpretation of the law because the compliance dept. of my US broker had some doubts.

[Guest Tresor]

Both clients and I are based in Europe.

[SIUYA 11]

Tresor - then you are really in problem - the Europeans cant even agree amongst themselves about regulations and they will probably over regulate the wrong people.

 

Given your comment "Pure nonsens and communism: the government decides who can be a money manager instead of the market."

 

they also decide who can drive, drink, vote, practice medicine. etc; etc;

When you consider the amount of poor money managers out there, imagine if there was no regulation.

[Guest Tresor]

Tresor - then you are really in problem - the Europeans cant even agree amongst themselves about regulations and they will probably over regulate the wrong people.

 

Yes, EU is slowly becoming the biggest socialist country in the world... unfortunately. So many stupid regulations, including even the safe shape of bananas that shops are allowed to sell. No kidding!

 

Given your comment "Pure nonsens and communism: the government decides who can be a money manager instead of the market."

 

they also decide who can drive, drink, vote, practice medicine. etc; etc;

When you consider the amount of poor money managers out there, imagine if there was no regulation.

 

A few months ago I met some Russians guys during snowboarding and they presented me with some basic facts (that I later confirmed from Internet sources) about Russia that made me wonder:

 

(i) flat personal income tax for all Russian residents of 13% has been implemented 10 years ago - imagine I pay twice as much! (any Western country has a budget deficit - Russia on the other hand has a budget surplus);

 

(ii) you can trade forex at the leverage that suits you best, even at 1:1000 - no ignorant politician would even think of telling the Russian traders what is a ''safe leverage'' for them - I read there are plans in the US to reduce the leverage to 1:10 - Is this economic liberty?

 

(iii) many more...

 

We will soon be visiting Russia to see what a capitalist economy looks like and Russians will be having sight-seeing tours in the Western countries to see what a socialist (regulated) economy looks like. Ironic :rofl:

 

It is true that there are many poor money managers. Someone gave them their licenses I personally think that the free market would verify poor manoey managers better than the state.

 

I agree that certain jobs should be regulated, e.g. medical stuff, security stuff, etc. Money managers should not be regulated. Did regulation prevented the people from Bernie Madoff?

[Simple 10]

Regulations allowed you to throw bad Bernie in jail.

[Guest Tresor]

Regulations allowed you to throw bad Bernie in jail.

 

Let us hope these specific regulations will not be used against Dinerotrader and let us wish him all success in his new career.

[Dinerotrader 10]

Let us hope these specific regulations will not be used against Dinerotrader and let us wish him all success in his new career.

 

Not quite there with the new career but just wanted to know what kind of red tape I need to be aware of if a wealthy friend wants to loan me $20k-40k to trade with. Not a lot of money but I'd rather be aware of what goes into doing it the right/legal way.

[Guest Tresor]

Not quite there with the new career but just wanted to know what kind of red tape I need to be aware of

 

I didn't help much with the red tape question. I just noticed the thread title and it reminded me of the nightmare I once had with a US broker when I tried to convince its compliance dept. that did not need to be a CTA to trade for non-US clients via a US broker. After a few months of trading US futures I switched completely to forex.

 

Forex brokers do not have any legal dilemas. If you have clients they do not ask questions. Instead they are happy to have clients

 

if a wealthy friend wants to loan me $20k-40k to trade with.

 

I do not know what your trading performance is. If I were you I would double think the loan, unless you are 99% sure of your trading strategy.

 

My history was a simple one: I presented my equity curve to three friends and they took the risk of losing their money instead of proposing a loan to me. Had it been a loan type of investing I would have probably not agreed to such structured deal.

 

We agreed on a 10% performance fee. Happily I did not blow their accounts and even managed to bring the profits they were satisfied with. At the moment I charge 30% performance fee for non-friend clients. I have 9 clients in total after almost 1 year.

 

On the operational side, the clients are sent daily reports by the broker and monthly performance report with a calculation of my remuneration. The broker is responsible for transfering my remuneration from the clients' account into mine.

 

All of my clients understand English so I do not get many questions from them regarding reports. I do not run bookkeping. I did not set up a company or any legal structure for this undertaking.

 

Once a year I am obligated to fill in tax papers and report the income from this activity and pay personal tax.

 

But my understanding is that US red tape may be more complex than red tape in Davy Jones' Locker.

[Dinerotrader 10]

I do not know what your trading performance is. If I were you I would double think the loan, unless you are 99% sure of your trading strategy.

 

I agree, a loan for trading without strong past trading performance is pretty risky and 99% of the time, a bad idea.