TRADINg a third Party Account

[Marwan2010]

I need help and advise.

i am successful trader and now trade for a living. I have earnt twice the amount of my normal salary last 12 months. I now want to get into money management and trade for other people. Initially I will only restrict this to friends and family. I do not want the hassle of FSA at the moment. Yet when I trade for the friends/family, I want to earn 40% of the profits.

How can I do this without breaking the law??? Although I have family/friends who are very close to me, but I just wantedto protect my backside! you never know what can go wrong in any relationship in future.

How can i protect my backside?

Someone suggested that i become an employee? if so how do I draft this?
is anyone doing this? if so I will appreciate your help

 

[Marwan2010]

If I can also add, that I trade with IG INDEX, and it is a spreadbetting account. I already have a POA and IG have also created a proxy account, so that from one screen I can select on which account I trade. So all the logistics are in place.

The only thing is I need to cover my backside.

HELP!!!

 

[Marwan2010]

hey guys!!! surely somebody can help me!!!
will greatly appreciate that

 

[Trader333]

In my view and "Technically Speaking" if you are using IG then you are not trading but gambling and as such you are effectively gambling with other peoples money. I suggest that you see a lawyer and draw up an agreement between the other parties and yourself that covers all eventualities. That way if things go wrong then it is covered by the agreement.


Paul

 

[shadowninja]

Out of interest, what happens if you lose their money? Do you refund 40%?

 

[grantx]

Marwan,

“A proxy account...I can select on which account I trade”.

That has got be questionable. There is nothing to stop you from taking the good trades and allocating the bad to the other accounts. I reckon you should be running an omnibus account whereby all trades are allocated proportionately.

But the question is whether you can operate like you do – acting via a POA and taking a rake-off. It’s a difficult area in the context of SB’s. It wouldn’t be allowed via an FSA authorised futures/stockbroker, for example (and I don’t give a fck how IB caters for this). FSA authorisation for SB’s relates to a very narrow and ineffectual area.

Grant.

 

[Marwan2010]

Thanks for the feedback; appreciate it,, here is more feedback;

Proxy - will take trades on all 3 accounts that i intend to trade. yes there may be different entry but will not be ignificant; so whatever trade i take on my account will be traded on all three.

Gambling - could look at IG Markets or other brokers - but then IG Index is taxfree.

40% profit share; - the "friend" will always hold 20% of the profit share as a reserve against possible future losses; eg say my share this qaurter maybe £10K, then £2K is held as a reserve, and is cummulated, until such time as the equity has doubled.

Also the first 20% will be held in reserve, before I get paid, so lets say he invests 100K, but my payout starts only after equity exceeds 120K. The first 20% is kep in reserve.

I also will get a management fee of 2%

if the account has a drawdown of 10% of initial equity, i stop trading.

Currently this all verbal! but i am just afraid........... so want to cover my backside, just in case the "friend" becomes a foe!

so please keep the comments coming in - appreciate this.

 

[Marwan2010]

omnibus account - IG will only offer this if I am regulated, so cant do it. Do you any brokers who will give me omnibus account without being authorised?

i have tried a few, but no joy? eg saxo, IB
will appreciate guidance on this

 

[grantx]

Marwan,

"omnibus account - IG will only offer this if I am regulated" hence my remark re IB (Interactive Brokers).

Your anticipated structure/basis of remuneration is pretty standard for fund managers. If IG insist you be regulated, and you became regulated, then you wouldn't trade through an SB - better to go via a clearer or FCM.

To avoid the cost of FSA regulation you could be an Introducing Agent to a broker who will provide the facilities under his umbrella. However, you could reckon on around only 25% of your cut. Morevover, at some point in time if you're successful, they'll sh1t on you and you'll be out in the cold.

The simplest form of FSA authorisation could be a "Small Firms" application. I'm not familiar with this one but I believe it is simpler than the "Sole Trader" application of which I am familiar.

If you think there is potential for your proposition then I would suggest paying a few hundred to a City legal firm for an opinion. This will save you a lot of time and potentially, a great deal of money - look on it as an investment.

Grant.

 

[Marwan2010]

Hi Grant,

Many thanks for the guidance, I am getting somewhere,

IB - I contacted them, as well as Saxo, and they will not give me imnibus unless i am regulated, however some other offshore companies will give me omnibus, but I would not trade clients money where I am not safe!

Trade through clearer or FCM - again goes to show my ignorence, please guide me further what you mean?

Introducing Broker - Which broker? any suggestions? I could work with 25% as a start

City Legal Firms - total newbie here, started with Yellow pages not getting anywhere. One firm quoted me £3K initial fees

So pls keep those guidance coming - really appreciate it

 

[r.w.]

If you trade other people's money for a cut, no matter what set-up, you are providing financial services and need FSA regulation - the law doesn't discriminate between friends and clients. In addition, spreadbetting is only tax exempt if it can be considered non-professional, so you would lose tax exemption. So the options are:

1. Get yourself set up properly.
2. Write up a contract for a loan where your friends' money will be returned plus discount rate, put the money in your own spreadbetting account, and sort out the payment of profits in concealed way.

I tried the second option years ago and wouldn't recommend it. Not good for relationships, however close or trustful.

 

[grantx]

Marwan,

You couldn't trade through an off-shore broker on this basis anyway without being regulated.

The other questions are irrelevant - you need to be authorised. £3k fees is cheap.

One possibility may be to take the money in the form of a loan and agree to pay a commensurate interest.

Grant.

 

[Marwan2010]

thanks

 

[bhavin]

I see a lot of these happening, and mostly they use a letter of employment contract. ie you will become an employee to the person giving you money, and in return you will get a salary, which will be very minimal, but then a bonus is paid based on th profits - productivity!

I have seen many guys do this and I have been approached many times by this so called traders.
some have been great andsome have had their accounts wiped out

 

[bhavin]

Also if you have a non UK address - on the contract, then it is even better, that way FSA does not have any legislation over a foreign national/resident.

 

[Marwan2010]

I see a lot of these happening, and mostly they use a letter of employment contract. ie you will become an employee to the person giving you money, and in return you will get a salary, which will be very minimal, but then a bonus is paid based on th profits - productivity!

Thanks Bhavin.
Do you by chance have a copy of the Employment contract? or anyone else!
if so please pm me.

 

[grantx]

Employment contract? Then your employer will be liable for National insurance class 1& 2 (I stand corrected as to the specific NI's), deducting income tax and paying it to the inland revenue. He may also be liable for corporation tax. There could be other factors.

Grant.

 

[leovirgo]

1. Form a limited company with Companies House. You can also buy off the shelf companies.
2. Make all of you shareholders. You get 1 share, the rest 99% is owned by other investors/shareholders. You become a director, but the rest can fire you.
3. Draw up an agreement to split the profits/dividend policy. You may use Part of Articles of Association
4. Open a corporate account with good broker such as interactive brokers(proper brokers)
5. You get approval to trade on behalf of the company by way of Corporate Resolution.
6. You can make arrangements to have two authorised persons to withdraw funds from brokerage account.
7. Use dividend method to pay remuneration/returns. (minimal NI/PAYE)

best,..