Financial backing

[birddog]

I was just reading the trading markets book and one of the traders referred to "financial backing".

Is their a customary industry standard? Is this done often? Everyone says 6 months of living expenses is needed - which I don't have. What I do have is access to clients capital. I could persuade someone to put up some capital but what would I give them in return - especially if I am also relying on this capital to live for the six month period.

Straight interest is an option. So is sharing in profits and losses, these are pretty simple if you lose and stop trading and pay them back in installments.

But what about if you turn the corner after say 3 to 6 months and you are consistently making money (even if not too much). What percentage of it should they be entitled to?

Birddog

 

[vsisto]

The industry is changing so quickly that I don't know if there is a standard any more. When Van Buren finances traders, we start with a 50/50 split of net profits and a 0/100 split of net losses. I think this arrangement is fair for the bearing of 100% of the risk. As cumulative net profits increase, this % should move in favor of the trader. When you add guaranteed payments/draws into the mix, the deal becomes more complicated but must increase the backer's potential reward for the bearing of more risk.

 

[NYSEat21]

birddog, from my interviews with many firms I found that the amount of capital the firm has and the market that the firm trades will greatly dicate what pergentage the payout is. I trade with a strictly NYSE and AMEX firm and our payout starts at 70% of net profits. Upon a quarterly review, your percentage will increase greatly...sometimes 10-15% depending on your gross days positive versus negative, volume traded, etc. Each trader is a little different and has a different style, so they mold the percentage to you and to your abilties. Most Nasdaq firms that I interviewed with had a draw of a set amount which acted as a salary, but then they had a MUCH lower payout percentage. This works out well for new traders as it gives them something to pay the bills as they learn, but once they turn the corner they get screwed by the low percentage. If you are using someone else's money to trade you might want t see if you can work out a deal with them. A 50% return would not be looked upon badly by anyone. But, they must understand what it is that you are doing with their money.