Trading as a service

[Handle123]

"Although most robo-advisers limit their offerings to automated portfolio management functions while avoiding other advisory functions, they are still deemed to be investment advisers subject to the Investment Advisers Act of 1940. As such, robo-advisers, like traditional investment advisers, are regulated by the SEC and must be registered; because they are deemed to be internet-only advisers, they may register with the SEC regardless of assets under management. As registered investment advisers, they are subject to the same requirements as are traditional advisers. However, because of the robo-advisers’ unique business model, some of these requirements, such as the fiduciary duty to act in the clients’ best interests, the requirements of full disclosure of conflicts of interest, and client account reviews, for example, may prove challenging."

I had looked into this ten years back as I always look at all the bad in life first, it seemed like a nightmare to myself and attorney, as so many ways of being bent over even though you trying to be fully in compliance. I believe the SEC is much tougher on regulations and they should be to a point, but also they need to look within as Madoff got away for years.

Glad I didn't go that way and concentrated on own funds.

 

[rubenhak]

"Although most robo-advisers limit their offerings to automated portfolio management functions while avoiding other advisory functions, they are still deemed to be investment advisers subject to the Investment Advisers Act of 1940. As such, robo-advisers, like traditional investment advisers, are regulated by the SEC and must be registered; because they are deemed to be internet-only advisers, they may register with the SEC regardless of assets under management. As registered investment advisers, they are subject to the same requirements as are traditional advisers. However, because of the robo-advisers’ unique business model, some of these requirements, such as the fiduciary duty to act in the clients’ best interests, the requirements of full disclosure of conflicts of interest, and client account reviews, for example, may prove challenging."

Awesome. very useful. thank you!

 

[1245]

Hi everybody,

I'm new to this forum. If this is not the best section to post, moderators please move this topic to appropriate category.

I have developed a trading robot which works good for me. I'm thinking about expanding it and making business out of it. The idea is to provide automated trading services to clients. The system will be using clients' credentials and will be trading on their behalf. Service will be charged mostly as a percentage of the performance and a small percentage of a managed capital. System is meant to be used for non-accredited investors, though may work equally well for accredited investors as well.

The questions are the following:

1. What are legal requirements to run such a business? Is this considered wealth management? Is it required to be fiduciary? Can you provide some hints what has to be done?
2. How to protect the business/myself from clients? There will be periods when the system will go negative. How to protect from law suits?
3. What is the most favorable legal entity to run such a business? LLC, S-Corp, C-Corp?

Thanks,
Ruben

1-It depends on what asset class you are trading, where your place of business is and where your clients are. You will be set up as the authorized trader and be given limited authority over the account. In the USA, for futures, you need to look at CTA exemptions and rules. For securities, look to your state regulator to see if you need to be an RIA.
2-Have clean contracts and meet any regulatory requirements.
3-Most managers are LLCs.

 

[userque]

But if it really good system and you stick it on collective 2, you have to tell them I believe how it generates signals, and eventually really good traders subscribe for free trial and figure out what you doing.

Not true actually. You don't tell C2 how your strategy works. All subscribers get are signals.

C2 does have a coding language platform that you can use, if you prefer, to build an automated strategy. It is hosted on C2, but subscribers won't have access to it, of course.

Otherwise, you simply enter your signals/trades into the C2 website (or other means); and the signals are sent to subscribers. Some subscribers set their brokerage accounts to auto-trade the signals. Or, you trade your own brokerage account as you normally do, and your trades are mirrored to your subscribers, real-time. (They also have API's, etc.)

 

[Zestilio]

I'm quite interested in how such bots work. And, most importantly, what glitches are possible within them? Would be really sad to lose all your money because of a mere bug...

 

[Handle123]

Not true actually. You don't tell C2 how your strategy works. All subscribers get are signals.

C2 does have a coding language platform that you can use, if you prefer, to build an automated strategy. It is hosted on C2, but subscribers won't have access to it, of course.

Otherwise, you simply enter your signals/trades into the C2 website (or other means); and the signals are sent to subscribers. Some subscribers set their brokerage accounts to auto-trade the signals. Or, you trade your own brokerage account as you normally do, and your trades are mirrored to your subscribers, real-time. (They also have API's, etc.)

I believed I had read it either on here or net you had to, I stand corrected, thank you.

 

[rubenhak]

1-It depends on what asset class you are trading, where your place of business is and where your clients are. You will be set up as the authorized trader and be given limited authority over the account. In the USA, for futures, you need to look at CTA exemptions and rules. For securities, look to your state regulator to see if you need to be an RIA.
2-Have clean contracts and meet any regulatory requirements.
3-Most managers are LLCs.

What kind of organization can help with requirements and registrations? Lawyers? CPAs?

 

[rubenhak]

I'm quite interested in how such bots work. And, most importantly, what glitches are possible within them? Would be really sad to lose all your money because of a mere bug...

Although automated systems can cause terrible damage in wrong hands the answer would depend on many factors. Some of those are:

1. Choice of programming language. There are languages that provide complete control of the execution, and others that run in a protected environment. I chose letter one to eliminate a possibility of data corruption.
2. Testing. I have unit tests that mock various market and account conditions and validate strategy output. This verification is executed after every single change to the code.
3. Type of strategy. Some bugs may still slip through unit tests, regardless how much it is tested. If the strategy is leveraged a wrong decision may cause significant loss. I decided not to go with such strategies. Instead I'm trading major ETFs and options, and before every single trade is made the system validates account value, existing positions and the order to not to exceed allocated amount. So in case of an error I will notice a performance degradation, but would never loose everything or a significant portion at once.

 

[byteme]

I'm quite interested in how such bots work. And, most importantly, what glitches are possible within them? Would be really sad to lose all your money because of a mere bug...

wait, do people still trade manually?

 

[rubenhak]

wait, do people still trade manually?

Technically speaking people always trade manually. Its the robots trade autonomously