How do I trade OPM legally? Excellent return, need advice

R

ro ana

Hi all,

So I have a lot of offers from friends and family to invest for them. I know this is usually ill-advised, but I have briefed them on the risk (that they may lose it all), and so only people with money to spare are interested. For 5 years of backtest data I averaged a 29% return per year, and this year so far I am up 56%. I also traded most of last year and ended at 81% return. Basically I want to start a fund/account to trade roughly 200k in investments legally with minimal startup costs if possible. Note, these people are not accredited investors. Is an LLC the best way, or a fully structured hedge fund? Does anyone have any suggestions on the way to do this? I understand it is risky, but I would appreciate advice on the process for this!
 
ro ana said:
Hi all,

So I have a lot of offers from friends and family to invest for them. I know this is usually ill-advised, but I have briefed them on the risk (that they may lose it all), and so only people with money to spare are interested. For 5 years of backtest data I averaged a 29% return per year, and this year so far I am up 56%. I also traded most of last year and ended at 81% return. Basically I want to start a fund/account to trade roughly 200k in investments legally with minimal startup costs if possible. Note, these people are not accredited investors. Is an LLC the best way, or a fully structured hedge fund? Does anyone have any suggestions on the way to do this? I understand it is risky, but I would appreciate advice on the process for this!
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yes, check out ib's friends and family program
 
and stagger the investments. If everybody invests at the exact same time, it can just about drive you crazy during drawdown.
 
ro ana said:
Hi all,

So I have a lot of offers from friends and family to invest for them. I know this is usually ill-advised, but I have briefed them on the risk (that they may lose it all), and so only people with money to spare are interested. For 5 years of backtest data I averaged a 29% return per year, and this year so far I am up 56%. I also traded most of last year and ended at 81% return. Basically I want to start a fund/account to trade roughly 200k in investments legally with minimal startup costs if possible. Note, these people are not accredited investors. Is an LLC the best way, or a fully structured hedge fund? Does anyone have any suggestions on the way to do this? I understand it is risky, but I would appreciate advice on the process for this!
More...
what are you going to charge? 2% of the gross and 20% of the profits is the going top rate

so on 200k what is that? 4k a year for you?

sounds like you have a secret plan but no money of your own to trade. Only way to come out ahead on that deal is to find a 50/50 partner. He loans you 50% of the account (at interest, but interest only) and you go to the bank and open a partnership account and then open a brokerage account in that name.
 
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If your doing it to be a nice guy, don't do it. If you have pro aspirations:

Stay non-pro for as long as you can. Go IB friends and family. Managed the funds of people you would not miss during Christmas. Stay within the limits of what your State will allow for a non-pro. Not IBKR's limits.

Develop a record and try to land the big investor with millions. If you don't land a big enough investor for a serious incubation stage, you may have to cull your small group of investors according to investment size to stay non-pro. The only reason to go pro is for preferential market access. Creating a tax entity will label you as a pro in the eyes of your broker.
 
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loyek590 said:
what are you going to charge? 2% of the gross and 20% of the profits is the going top rate

so on 200k what is that? 4k a year for you?

sounds like you have a secret plan but no money of your own to trade. Only way to come out ahead on that deal is to find a 50/50 partner. He loans you 50% of the account (at interest, but interest only) and you go to the bank and open a partnership account and then open a brokerage account in that name.
More...

I don't think you are allowed to charge a "performance fee" with non-accredited investors (I could be wrong).

(I have no legal knowledge... so take what I'm about to say with a grain of salt...)
If your mind is set on starting a fund of sorts, I would say go the Proprietary Trading Business Route (like Jump or Optiver, etc). Form an LLC, your investors invest in the LLC as a business, not directly in trading. Your LLC operating agreement states how profits are distributed/reinvested, as well as how members sell their "share" in the company.
 
The rules depend in part on if you are trading stocks or futures. You should check with the regulatory agencies. I have a big secret for you. If you call them, they can actually route your call to a specialist who can answer your question. Its amazing how it works.
 
loyek590 said:
what are you going to charge? 2% of the gross and 20% of the profits is the going top rate

so on 200k what is that? 4k a year for you?

sounds like you have a secret plan but no money of your own to trade. Only way to come out ahead on that deal is to find a 50/50 partner. He loans you 50% of the account (at interest, but interest only) and you go to the bank and open a partnership account and then open a brokerage account in that name.
More...


I am going to charge an upfront few and then a portion of profits as well. The fee can then be traded as my own money and so will the profile percentages.
 
MrN said:
The rules depend in part on if you are trading stocks or futures. You should check with the regulatory agencies. I have a big secret for you. If you call them, they can actually route your call to a specialist who can answer your question. Its amazing how it works.
More...


It's just stocks no futures. What agencies?
 
xandman said:
If your doing it to be a nice guy, don't do it. If you have pro aspirations:

Stay non-pro for as long as you can. Go IB friends and family. Managed the funds of people you would not miss during Christmas. Stay within the limits of what your State will allow for a non-pro. Not IBKR's limits.

Develop a record and try to land the big investor with millions. If you don't land a big enough investor for a serious incubation stage, you may have to cull your small group of investors according to investment size to stay non-pro. The only reason to go pro is for preferential market access. Creating a tax entity will label you as a pro in the eyes of your broker.
More...


How do I manage people's money without forming an llc. And what do you mean by staying non-pro. I do intend to become pro though.
 
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