Moving from a Prof Prop Trader to Using Other People's Money

[lindq]

What other alternatives might there be?

Trading OPM at any degree puts you on an entirely new level of responsibility and anxiety.

If you haven't had the experience, you might want to try to involve a family member or close friend at even a tiny level of involvement to see if its something you can handle emotionally.

Yes, that can be difficult to arrange, but far easier than jumping into a professional relationship and finding that you've made a big mistake.

 

[DaddyofTwo]

Thanks for your comment. I really don't think that this would affect me too much. Most of what I do is pretty quantitative - although there is still a subjective element. I would be presenting my trading history accurately and honestly and either they would want to accept the risk or not. Presumably any sensible investor would have this as part of their portfolio.

 

[DaddyofTwo]

I have met traders who do it, but they had to prove their mettle first at the office and in person.

Hi Bone
We know each other as I did your course about 6 years ago - I'll PM you

 

[DaddyofTwo]

You are welcome. You can become a CTA even if you are overseas and raise funds here in the USA.
If you wish to get customers from the UK, I would assume you would need an FCA license.

Whether you want to work with the public or not, it's a different story. Just keep in mind that the institutions who you wish to work with have low tolerance for drawdowns despite your performance and equity highs.
I think you should investigate what is the risk/reward and drawdown from equity highs these institutions allow.
Go with the ones that are reasonable for your method.

Hi Matt

I was speaking to somebody who went through this route in the UK and it cost him nearly £300k to get the required compliance. I would also probably need to hire a full time compliance officer at quite a substantial salary. I am looking at ways to ride piggy back on somebody who already has done this.

I think that it is much easier and laxer in the US. But I don't want to go chasing around in a foreign country for funding - I don't think that is my forte and I have more than enough on my plate already.

But many thanks for trying to be helpful.

There are drawdowns - I trade small movements in stable combinations - and so I have to have quite chunky positions to make it worthwhile. But the drawdowns are manageable and would be less of an issue as part of a portfolio. I am much more relaxed about the drawdowns myself and my trading is one of my primary sources of income.

 

[DaddyofTwo]

I don't know your situation, but shoudn't your prop firm keep upping your capital to nearly unlimited if you are making them money?

Hi Marketsufer

When I said proprietary trader - I mean with my own money. (I own the prop firm - well my wife also has 50% of the shares but they are non-voting!! and unfortunately I don't have unlimited capital!!)

 

[DaddyofTwo]

40% return every year! Assuming you have, say, $250,000 no need to become someones punching bag.

Hi Jones75

I work on the basis of having withdrawn 100% profits until seed capital, and now withdraw 50% of nett profit. This grows my trading account whilst ensuring that I can live and enjoy the fruit of my efforts - I am doing this as a day job (or admittedly as one of my day jobs). This also helps me to achieve more emotional detachment.

So to use your example, if I had $250k in my trading account, in an AVERAGE year this would be $100k of profit - but would leave me with $50k of income - and this is before tax.

I realise that I am lucky to be able to earn a living from my trading - but I would need considerably more than $250k in my trading account to live the dream. I have a family to support, and one of my other businesses is in a start-up phase and requiring me to inject cash and will need funding for at least a couple of years more. Personally, I know that it would be healthy for me to do trading as my only job - and I find that I am more profitable when I only look at my screens every couple of hours to see what the auto-spreader has landed.

I don't intend to become anybody's "punching bag" - and although I can see the advantages of scaling up, I don't need to. But hopefully I can find the right partner.

 

[lovethetrade]

I did exactly what you want to do. I took OPM (other people's money) and I didn't last one month. One guy called me up and said the market is up 6% and you are up 2%. The market turned south and lost 9% while I was up 3%. Did I get a call? No. They are never satisfied regardless of your performance and it is a pain to talk to them.

That's just typical ignorance and happens in many aspects of life. Thats why its best to structure your business professionally so you're not directly answerable to every client that contacts your business. Hire a secretary/assistant, outline everything in your prospectus/marketing, send out periodical reports and give the client several options to withdraw.

Make sure the clients understand the risks and have all the legalities covered. There should be minimal dialogue between the fund manager and the client.

 

[tradethetrade]

That's just typical ignorance and happens in many aspects of life. Thats why its best to structure your business professionally so you're not directly answerable to every client that contacts your business. Hire a secretary/assistant, outline everything in your prospectus/marketing, send out periodical reports and give the client several options to withdraw.

Make sure the clients understand the risks and have all the legalities covered. There should be minimal dialogue between the fund manager and the client.

Agree 100%. I was a pro trader and an amateur fund manager. Lot's to learn and I gave up soon.

 

[comagnum]

Since you're not already a CTA I would think you would need to have your tax returns audited and charted to show the performance metrics by one or two national firms to be taken seriously by hedge funds - your claims put you in a leauge very few CTA's have accomplished, I would think an audit would go a long ways to getting what you want. The managed futures trader I have invested with before provided this audit.

Here is an example of charted performance metrics I was refereeing to:

 

[lindq]

Make sure the clients understand the risks and have all the legalities covered. There should be minimal dialogue between the fund manager and the client.

Well, that's pretty ridiculous. You're just kicking off your fund with a few initial clients and you're going to tell them, what?

"Thanks for the few hundred thousand. And by the way, if you get a statement and happen to notice your 20% drawdown, I'll be out of town. Just leave a message."