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

[ballsofgold]

Daddytwo,

Ive traded opm, done prop, bank and fund...im familiar with uk and us rules

Right, getting fca registered if u do it yourself is around 5k to 15k, takes 4 to 6 months...and you can outsource to http://www.methuenconsulting.com which is much cheaper than linearinvestments...all the bells and whistles linear provides you do not need as a startup

apex fund services, for example, charges 36k per year plus mngmt fee based on assets......for all services...so j can enter much cheaper....if u do yiur research

in the us,so long as you are below a certain threshold in assets and less than 15 accounts, rule 4.67 or whatever, you can market as a cta but don't have to regjster with nfa. having said that, voluntary registration is recommended as its cheap

im more concerned about your reasons for taking outside money. unless you need more cash for strategy diversification or need instituional access, you are better of scaling up yourself and keep 100 %

once u take in outside $, best execution requirements kick in and you dilute your earnings with investor. so unless you can get to 10 million aum with a 35% split, it is a waste of tme

call up infinity capital management, the UK arm of first new york....unless your track record is scalable to greater than 1mm, they wont waste tine with yo y

 

[ballsofgold]

pm me, i will tell you the right contact at infinity to speak to but will need to do some vetting first

 

[ballsofgold]

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I work on the basis of having withdrawn 100% profits until seed capital, and now withdraw 50% of nett profit.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.

let's say your investor is uk based, you are deemed as conducting a regulated investment activity. and run compliance costs, let's use £30k per annum

you can get around this by only dealing with institutional investors who give you a managed account under a consultancy arrangement. but as a newbie, you will get 1/20 or 0/35. but it all depends on what u negotiate

lets say u have 1mm seed with 3x max notional leverage at 1/20

so your mngmt fee is 10k per annum

you hypothetically make 400k for the investor but you can only keep 20% = 80k

depending on your compliance costs you are in a worse situation

just wondering, have u done an ltd on your trading or operating as a sole trader

 

[lovethetrade]

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."

I appreciate you're a nice guy, you have good intentions and try to do the best by people. I'm no different, in actual fact, I'm a lot more prudent with other people's money than my own.

However, I've seen what can happen with people when it comes to business and money. If you know who your investors are then IMO you're going about it the wrong way from the outset. There needs to be separation between fund manager and investor. The last thing a fund manager needs on his mind is the identities of the people he's investing for. If you can't create or afford that separation then you're probably not in a position to manage OPM.

Furthermore, your initial investors don't need to know they're the Guinea pigs. All they need is information to evaluate the investment product you're offering.

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.

I would never accept money direct from family or friends either. They're welcome to invest in the fund like any other investment product accessible to the market providing I don't know anything about it.

 

[bookish]

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.

Severe understatement. Plus lots of attitude. "I was in the war so that means I'm better than you at everything never mind I think 12 percent a year is an amazing return and why am I not getting 5000 percent a month from you?" Its like they are all on meth.

 

[bookish]

I would never accept money direct from family or friends either. They're welcome to invest in the fund like any other investment product accessible to the market providing I don't know anything about it.

Your own mother will try to sneak in your window and slit your throat the first day you have a loss.

 

[marketsurfer]

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.

Well, that would be the ideal situation-- but in the real world ,unless you are a superstar with the pedigree and reputation to match, YOU WILL HAVE TO TALK TO ALL YOUR CLIENTS. or NO ONE will invest with you-- sorry but that is just the way it is.

surf

 

[marketsurfer]

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!!)

Why not become a proprietary trader with access to capital rather than the hassle of CTA or hedge?

surf

 

[ajensen]

Why not become a licensed CTA (commodity trading advisor) if you are a good trader?
You can use your own track record for the documents. In the beginning you will find a handful of customers, but if you are good and have the ability to scale up with larger size, it may workout for you in the future. Also, you will trade on your own terms.

I have a volatility strategy that trades XIV with an S&P hedge. I have another strategy that trades closed-end funds. If you are trading more than futures, and you are just starting out with OPM, what structure should you use?

 

[MattZ]

I have a volatility strategy that trades XIV with an S&P hedge. I have another strategy that trades closed-end funds. If you are trading more than futures, and you are just starting out with OPM, what structure should you use?

I think you should talk to a lawyer who is familiar with such structure. My intuition tells me that you need some fund structure because you have two underlying assets.