How to trade a pool of money?

Quote from igotbadbeat:

So 10 of my friends all want me to trade for them. We want to have a collective pool of money where I get 50% of profits and they split the rest (based on percent of money invested).

Each person is investing $25K-$150K and the total about of capital will be around $500K.

Thus far we've only talked about it very loosely, and I never followed up on the idea because I assumed they were joking. But now, I've realized my friends aren't joking. They really wanna do it and I'm willing to step up.

Just looking for the next steps that I have to look into and problems that I have to anticipate facing in order to do this.
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If your are trading stocks can't help any - if trading commodities -

Just set yourself up as a CPO and keep the number of people below 15 (I think) and money below $400K and file all the necessary exemptions with the NFA and the CFTC (check out both of the sites for the info) and trade as one money.

Hope that helps somewhat.
 
Quote from Pekelo:

1. To simplify the math, you could lock the money up for 1 year, 6 months or whatever and cash the profits at the end of each period. Otherwise you might need a little accounting program to follow who has how much, if they keep withdrawing or adding while you are still in position.

2. In some states you can only have 7 or less investors without having a licence (using IB's adviser account) and also the investors have to be residents of the state. You have to look up your own state's rules. (IB doesn't care about state rules)

3. Expect them to inquiry about the current state of the account all the time.

Other than that, go ahead with your business plan...
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In addition to Pekelo's rather excellent advice, I think it is far more important to determine how you will split-up the losses than it is for you to figure-out how to split the profits! :D

And take a gander at Pit Bull by Buzzy Schwartz before you get so hot under the collar to manage one-half a million dollars of your friend's money.

Anywho, despite the fact that most here don't think it's a great idea, good luck.

P.S. All it takes is one bad apple to spoil the whole cart, don't forget that!
 
Other than some of the excellent advice, I think all you need to do is incorporate a "trading club". You literally set yourselves up as limited partners and get a tax ID. Let the club pay the taxes directly out of the fund.

You will need a lawyer and accountant though. If ANYTHING goes wrong, even a silly mistake you will regret not having retained the services of both of those folks ahead of time and getting advice from them OFTEN.
 
mostly bad advice for a beginner. the one piece of good advice is the ib advisor account. you dont need lawyers or accountants or other paperwork hassles with ib. since each pearon has his own seperate account and you do not take control of that account, in most states you are not required to do any reporting and each account holder pays his own taxes.
you do not want to take control of the money and treat it as a pool. that opens you up to all kinds of paperwork requirements and legal liabilities. once you become established and get a few profitable years under your belt you can think about taking that step.
 
"IB caps the amount of advisor fees earned in any 360 day period to 25% of the client's average equity over this period, with additional cap limits at 30 day increments in-between (i.e. 7.2% over the last 30 days, 17.7% over the last 180 days). When any fee cap is exceeded for a client, the advisor will not receive any client fees until the fee cap is no longer exceeded"

The above quote is from IB's website. The OP wants to split the profit 50/50, but it looks like IB calculates fees not by profit, but by average equity. So if the client lowers/raises his average equity by withdrawing/depositing funds, then the advisor's fees will go down/up, even though the profit (in absolute dollars) is the same? Can someone shed some light on this? It's a little confusing:confused:
Thanks in advance.
 
Quote from vhehn:

mostly bad advice for a beginner. the one piece of good advice is the ib advisor account. you dont need lawyers or accountants or other paperwork hassles with ib. since each pearon has his own seperate account and you do not take control of that account, in most states you are not required to do any reporting and each account holder pays his own taxes.
you do not want to take control of the money and treat it as a pool. that opens you up to all kinds of paperwork requirements and legal liabilities. once you become established and get a few profitable years under your belt you can think about taking that step.
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With all respect, the OP has to get a Lawyer and he must also retain a qualified Accountant the both whom can adivse him as to the correct way to develop and maintain his business.

Don't do this in a half-ass fashion, otherwise it will just comeback and bite you in it!
 
Quote from MandelbrotSet:

With all respect, the OP has to get a Lawyer and he must also retain a qualified Accountant the both whom can adivse him as to the correct way to develop and maintain his business.

Don't do this in a half-ass fashion, otherwise it will just comeback and bite you in it!
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nonsense. i have used the advisor account for years. it is set up to eliminate the need for a back office. the key is that you do not control the money. you only have trading access.
especially now post madoff it will become more burdensome if you have control of the money. once he survives long enough to know he can even make it he can think about going the fund route with all of the paperwork burdens that comes with it,
 
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