Trading for a Friend

[Ynos 10]

Hi,

I day trade mostly stocks and recently one of my closest friends asked me to trade his money along with my own (he has 5k to give me).

 

I would either be trading longer term with his money or add it to mine (if legal to do so) because of the pattern day trading rule.

 

Has anyone here done this? What legal entities if any need to be formed? Someone recommended a partnership but I don't know. Would a joint account work?

 

I am not an investment advisor or anything like that if it matters for this.

 

I would rather just do the legal part on my own rather than go to a lawyer.

 

Any help would be great.

 

Thanks

[Tiobingo 10]

Ynos, I think it is wise of you to ask these questions. I'm not an attorney either but I would offer you the following things to think about.

 

1. Tax implications

2. A 'passive investment' LLC might be the way to go for you. Much depends on where you live.

3. Better to be penny wise than pound foolish. Tradersaccounting.com might be a good place to begin looking. I don't endorse them but I did attend one of their webinars and they know there stuff. You might be able to get a free consultation.

4. Have you thought of futures or forex? They both offer compelling opportunities for day trading and are treated much differently than stocks.

 

Good luck. I'm sure you'll find the answers you need to make the best decision.

[brownsfan019 17]

One way around the whole legal setup would be start a system on Collective2 and have him open a brokerage account that can accept signals from C2. So you send the trade to C2, C2 sends it to his broker. Creates an additional step or two for you, but that is a quick way to get it going w/o a lawyer in between.

 

Of course the $5k in stocks is going to create a pdt problem. I'm so used to trading futures now that I don't think about the pdt anymore. Can you send your signals on an index - like the S&P, Dow, or Nasdaq? If so, then the ES, YM or NQ contract could work.

[Tiobingo 10]

I'm curious now about this C2 arrangement Brownsfan. Can you direct me to where I can get more info about this? I was unaware of this arrangement. I have used an Interactive brokers master account to manage sub accounts in different names. With that you can apportion what percentage of each trade you would like to come out of each account and vice versa with p and l's. But it sounds like this is something different altogether.

[Tams 20]

Hi,

I day trade mostly stocks and recently one of my closest friends asked me to trade his money along with my own (he has 5k to give me).

 

I would either be trading longer term with his money or add it to mine (if legal to do so) because of the pattern day trading rule.

 

Has anyone here done this? What legal entities if any need to be formed? Someone recommended a partnership but I don't know. Would a joint account work?

 

I am not an investment advisor or anything like that if it matters for this.

 

I would rather just do the legal part on my own rather than go to a lawyer.

 

Any help would be great.

 

Thanks

 

that's the fastest way to lose a friend, your own trading account, and his money...

[Tiobingo 10]

Hmmm... Words of wisdom from Tam. Lol.. He does make an excellent point. I don't even talk to one of my cousins anymore after winding down what proved to become a terrible partnership in a business we were involved with. I didn't think about that but come to think of it, it's a very important consideration.

[Tams 20]

... you will lose your own trading account too,

because you are basically changing your own set up,

and divide your focus in something that's not your normal trading operation.

[brownsfan019 17]

I'm curious now about this C2 arrangement Brownsfan. Can you direct me to where I can get more info about this? I was unaware of this arrangement. I have used an Interactive brokers master account to manage sub accounts in different names. With that you can apportion what percentage of each trade you would like to come out of each account and vice versa with p and l's. But it sounds like this is something different altogether.

 

More info here.

 

[WorldTrader 10]

I echo the same feelings. Say very nicely, that you can't and don't want to trade his money. Tam's gave you some great reasons. You will be mentally worried on every trade, more so than usual. If it is a loss your friend will be mad. You will pull profits too quick and let your losses run...there goes the account.

Just not worth it. Have him look for a good managed fund with good results.

[cuttshot 11]

I have mixed feelings on this one. I do manage some funds for family members and it has gone just fine. You need to make sure your relationship could make it through a tough stretch of trading/losing money.

 

I understand some of the above comments on it being a bad idea. I guess it would all depend on who it's for. It it's someone that is going to hound you for daily results and freak out at a losing session then no it's not a good idea. If it's for someone that understands up front they need to be in for the long haul then I don't have a problem with it.

[atto 20]

I highly recommend against trading family and friend's money. You will stress your relationship, and you don't want that extra risk. Additionally, your trading will likely suffer. If you're that good, just give them some of your extra money .

[Ynos 10]

I have tried to talk him out of it for 3 months telling him horror stories but he is insistent and I get the sense that he thinks I am being selfish by not doing it already.

 

He originally wanted me to trade his 5k in my futures account which I refused, due to obvious reasons.

 

We are both 31, we have been friends since we were 18 and have been very close since college.

 

His former investment advisor lost him about 8k of his 10k which he had saved, he then moved on to investing for himself and lost a little more.

 

If I do it he will not bug me daily about it, this is something we talked about.

 

I was hoping there was some kind of account that could be set up where I place trades on his behalf but it is his account.

 

I would be swing trading stocks 2-6 week holding time usually.

[bathrobe 10]

Ynos,

I was in a similar situation trading futures though. He opened an account and I advised him on what to trade. This could be very easy swinging stocks I would think.

[cuttshot 11]

Ynos,

 

It sounds like he is aware of the risks in the market with the experience he has had. It's obviously your call so I wouldn't let us influence you too much. You know your relationship with him better than anyone. I made the decision to trade money for certain family members but have also turned other ones down because I have a different relationship with them.

 

If you are going to be swing trading stocks then you could just have him open the account and you advise him on what trades to take. This way you are seperate from the account just in case things go bad or something happens between the two of you.

 

This would not be difficult to do. You are not making trades that are as time sensitive as day trading would be. That would be my choice to start things off.

[SunTrader 10]

Lik BP's oil and the water of the Gulf of Mexico - a bad mix. :fight: