Using Trading to Transfer Capital.

[ras72]

It is not illegal in the U.S. per se, I would challenge those stating so to provide references to the law or case law. It could be illegal if you're doing a set of offsetting trades with no potential gain to transfer money from a taxable to a tax free (i.e. IRA) account, for example if you buy SPY options in one account and sell identical SPY options in the other in an activity that can by definition have no net profit and in fact loses you money on commissions. This runs afoul of the economic substance doctrine codified in sections 6662, 6662A, 6664, and 6676 of Section 26 US Code, which broadly state that any transaction without economic substance or business purpose that results in tax avoidance is illegal. There is no problem with the transactions, its the tax avoidance part thats illegal. Again with the CFTC/SEC, if you're doing it to manipulate markets then the market manipulation part is illegal, but just doing it is not and there's no per se standard that this type of trade is automatically manipulative.
Note that this has nothing at all to do with what Hillary Clinton was alleged to have done with cattle futures, that was about trading without sufficient margin and misallocation of profits from another account to hers. But thanks for reminding us that election season is coming up and we need to bring every conversation we have, no matter how unrelated, back to some kind of negative hit on the candidate we don't like!

Lovely post. Clear, concise, knowledgeable, factual, witty, slightly polemical. Thank you for taking the time.

...
I put on half long and half short on the open
I close them both out on the close
then I assign the wining trade to Hillary and the rest to the donor...

That's something different. Also could we keep politics out of this.

 

[loyek590]

what politics are you talking about? It was a technique often used by brokers who had discretionary accounts to make sure their losing customer had some wins now and then to keep him happy

 

[loyek590]

it's not illegal to go long in your roth and short in your reg, but what's the point? You would still have to guess right, and commissions and spread eat up about what you would pay in taxes.

you need a full service broker who can assign trades after they are completed

a full service broker can put it all on and tell the fcm, "I will assign them later.

 

[Scataphagos]

It occurred to me that if one is consistently profitable (or losing) trading, one can use that to transfer capital by doing simultaneous opposite operations on at least two accounts.

Has anyone ever done that, intentionally, purposefully? Any thoughts?

If you have to post the results "real-time", that likely wouldn't work. Possible if only one can "post all of the losers to one account, then post all of the winners to another account". Or, am I missing something?

 

[rmorse]

It occurred to me that if one is consistently profitable (or losing) trading, one can use that to transfer capital by doing simultaneous opposite operations on at least two accounts.

Has anyone ever done that, intentionally, purposefully? Any thoughts?

Putting aside the legal/illegal aspect to this, you are making the assumption in advance, that you know you will make or loose money on a trade. If you could do that consistently, I would focus on that. Most of us have a "expectation" of profitability or we would not enter the trade. You are looking at a higher level of certainly. What if profits go the wrong way?

I would avoid this.

 

[loyek590]

it's not illegal for a full service broker with discretionary accounts to put it all on and assign them later, he functions just like a CTA, and things move fast and he starts each day looking at his AUM. But it is illegal if the FTC determines that you are routinely assigning winning trades to one account and losing trades to another.

politics? You think mentioning a politicians name affects my opinion of mirror accounts?

go down to the basement and I will bitch and moan with you from the sun comes up to the cattle come home about politics. But up here we are just talking about money and staying out of court. (they hardly ever jail anybody anymore.) They would rather just collect the fine. And if you are a broker you must determine if the risk of the fine is worth the possible payoff.

 

[loyek590]

If you have to post the results "real-time", that likely wouldn't work. Possible if only one can "post all of the losers to one account, then post all of the winners to another account". Or, am I missing something?

yes, you are missing it, the fcm knows what you are good for and doesn't really care how you split them up

 

[loyek590]

you can't do this anymore with a discount broker where all trades are assigned immediately to the appropriate account

 

[loyek590]

for instance, even if you are 100% legal and you want to put on a shitload of corn, and the market is moving fast. You just want to get all of your customers in. Later on after the trade you assign contracts to each account based on their account value. And the fcm is cool with that, because in his mind you are his only customer. He knows how much your AUM is.

 

[loyek590]

It occurred to me that if one is consistently profitable (or losing) trading, one can use that to transfer capital by doing simultaneous opposite operations on at least two accounts.

Has anyone ever done that, intentionally, purposefully? Any thoughts?

and getting back to the loonie who started this thread, please tell us your secret for being "consistently profitable" or for that matter being a consistent loser.