How to trade a pool of money?

I

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.
 
Quote from Pekelo:

Correction: ex-friends
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Despite all the VALID skepticism, could we just focus on the realistic issues. ANd just use some suspension of disbelief about my friends trusting me or the fact that I'm a proven winner at trading. We're just assuming those two parts are already taken care of even though they are by far the hardest and most unlikely parts of the business plan
 
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...
 
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.
More...

This assumes that all money were pooled into one trading account. Who should take responsibility for this account and consequently for paying taxes on the account? If this account was opened under person's name then how to distinguish his ordinary income taxes from the capital gains taxes?
 
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.
More...

I'm surprised that if you have the trust of 10 friends to manage substantial money.. you must have experience/training... so you should be able to figure this out yourself

its like a hedge fund manager asking the forum how to open an offshore account?
 
Im not 100% sure, but I don't think what you are talking is legal. It is my thinking that to trade other peoples money, you have to be trained and licensed as a stock broker. That way you know how to fully inform clients of risks, and protect yourself with state backing, if the trading goes bad from the clients point of view. If everything is not on the up and up from the states point of view, you could be held liable, even if the client doesn't profit as much as they thought they would. IE, they could take their profits out of your hide if they cop an attitude and rat you out.

I'm doing good, but I would never trade my friends money. But I do tell them pretty safe sure bets for the short term, so they continue buying me friday night beers. :D
 
Are you already trading and never dealt with the increase size of the money you manage? If your friends trust you with trading/investing their money, it means you are probably doing it with your own account profitably, no?
 
Talk to a securities lawyer, forget using any sort of retail account. Make sure you understand all the back office functions you're responsible for. Make sure you have an accountant and an independent auditor in place. Don’t expect that things will be the same when you step up in size from your small retail account to 500k, not that 500k is much money in the real world. What kinds of products are you going to trade? There are different tax advantages in different products. The list is pretty substantial in addition to the licenses you may need.

I seriously agree with the others who made comments along the lines of you are clearly not prepared to do this nor are it usually a good idea to take friends and family money, not that it sounds like you have the experience or record to solicit outside capital.
 
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