Trading Other Peoples Money - What is allowed?

[CrudelyTrading]

Hi,

I have been asked by a couple of pals to trade their money for them. One account of 25k and another of 42k.

Not sure this is actually allowed is it ? I know I can get a POA to trade their account for them, but do I not need to be a CTA to do that ? Or is there a level of "friends accounts" I can trade before having to be registered ?

Realize I could just access their account and just "trade it", but would only be comfortable doing it within the guidelines of the law.

Advice appreciated.

 

[glyder]

So far as I know most methods of trading somebody elses funds require FSA authorisation.
There are share clubs, but that tends to be joint decisions on pooled funds.

There is a 'general prohibition' in law
http://www.legislation.gov.uk/ukpga/2000/8/section/19
Managing funds is an authorised activity

However S.22 FSMA state that to be an authorised activity it must be 'carried on by way of business'
http://www.legislation.gov.uk/ukpga/2000/8/section/22

So if you are doing it free of charge that may be an exemption to some extent. There are other potential complications.
Your pals would have little in the way of compensation coming to them from any compensation scheme - if you ballsed up you can be held personally liable.

This is a legal and regulatory minefield, take good advice and be careful what you get yourself into.

edit: the FSA's view on prosecuting prohibition
http://www.fsa.gov.uk/pages/doing/regulated/law/index.shtml

remember if the broker gets wind that the account is being operated by a third party he may have a duty to inform the FSA

 

[CrudelyTrading]

I see.

So trading 2 friends small accounts is seen as "Managing Funds" and therefore "Authorised Activity" - It´s a bit pathetic, isn´t it. lol.

I remember sometime someone told me that in the USA you can manage up to 5 "friends and family" accounts without being registered. I guess nothing like this is available in the UK ?

Worrying information you have supplied though, thanks for the feedback.

 

[shadowninja]

I thought you could simply register as (ok I can't remember the term) XXX of YYY. It's a legal status for managing estates/money.

This is what happens when you get old. You forget things. I'll be in Tesco later and shout it out when I suddenly remember.

POWER OF ATTORNEY!!!

Now, what happens when you go all in, highly leveraged and create a debt of £100k for your friends?

 

[CrudelyTrading]

Thanks Shadowninja.

Anyone know the exact term to research on this ?

 

[Magnet Services Ltd]

I am not an expert on regulations but when I worked at FXCM if you wanted to pool other people's money you would have to register as a commodity pool operator which is a fairly involved process that you can read about at the link below:

Commodity Pool Operators and Commodity Trading Advisors

The easier and better way to do things in my opinion would be to register as a CTA. The difference between a CPO and a CTA is that CPO accept client money and CTA's have their clients send money to a registered FCM like FXCM and then trade those client accounts via a limited power of attorney.

I think there may be a loophole if you are trading less than 15 accounts however it would be best to speak to the firms that you are considering trading with about this because it is going to vary from firm to firm.

Hope that helps.

http://www.magnet-services.co.uk/

 

[CrudelyTrading]

Hi Magnet,

This sounds like a USA issue ? CTA, CPO etc.. I am talking about in the UK, not the USA.

Assume shadow was talking about the UK as Tesco was mentioned LOL. God forbid there is Tesco in the USA... HA.

Just to be clear, what´s the situation in the UK ? Not really interested in USA regulations as they won´t be applicable to me, BUT I thought there may be an equivalent "friends and family" in the UK, via the FSA I assume ?

 

[anthonyb]

You may find you need to be registered with the FSA, probably best to check this link http://www.fsa.gov.uk/Pages/Doing/Do/index.shtml . You really do want to be very careful as others have stated. If unsure ring up the FSA or get in touch with them somehow and explain what you are looking to do, they will be better placed to advice.

 

[mindset]

I am not an expert on regulations but when I worked at FXCM if you wanted to pool other people's money you would have to register as a commodity pool operator which is a fairly involved process that you can read about at the link below:

Commodity Pool Operators and Commodity Trading Advisors

The easier and better way to do things in my opinion would be to register as a CTA. The difference between a CPO and a CTA is that CPO accept client money and CTA's have their clients send money to a registered FCM like FXCM and then trade those client accounts via a limited power of attorney.

I think there may be a loophole if you are trading less than 15 accounts however it would be best to speak to the firms that you are considering trading with about this because it is going to vary from firm to firm.

Hope that helps.

Recycling Machinery | Waste Management Machines | Scrap Handling Magnets and Industrial Magnets

Where does it mention on the FXCM website that you can setup up as a CTA? i am UK based by the way..

 

[2George]

Trading (spread betting) is viewed as gambling ny the UK government. Tax exempt.
However, if you do it for a living then the correct people to contact are HMRC and in the unlikely event that they say that gambling your friends money is a taxable activity, you can trade your friends accounts on their behalf. They will need to set up their own accounts with a spread bet broker.
If they chose to honour your verbal agreement of 'x%' of the profits go to you, then I feel there is no way that HMRC will tax you on your earnings.
If you charge your friends a management fee then this will attract tax.
Hope this helps.
George

 

[tommac]

I trade other peoples money under a Power of Attorney. voluntarily registered with FSA. No problem if you are NOT trading as a business. (debatable) Family funds are traded in one account as per normal

 

[anley]

Who are your friends, do they understand the business of trading?

If they do, chances are they'll leave you alone and let you get on with your thing.

But if they don't know anything about trading, and I assume they don't, you have a lot of crap coming your way as they'll expect you to perform like a pub fruit machine, ie every week/month they'll be a nice profit to collect.

Plus, assume you're long stocks or Gold and it goes lower, chances are they'll call and say crap like 'why weren't you short, it was obvious the market was heading lower'. For the money you'll probably earn (less than a few grand) crap like that can really mess you up, hence your own trading results might suffer.

Some ideas to think about anyway.

 

[Randolsky]

I trade other peoples money under a Power of Attorney. voluntarily registered with FSA. No problem if you are NOT trading as a business. (debatable) Family funds are traded in one account as per normal

Please clarify what you mean by "voluntarily registered with FSA"- what does that actually mean and allow you to do? As far as I can see, trading other people's money is a regulated activity but I would love to know if there was some way around that in a situation where I have willing investors. I was also considering taking their funds on an unsecured loan basis so I'm not trading their funds but they become mine.

 

[bha1]

Register as a fund in Gibraltar problem solved

 

[Gavin_ron]

It seems to me that this is not a very good option and will not lead to anything good.

I would agree with you. Better to play safe.

 

[OpenTable]

OK so I read this on another forum...(link below)
“There is nothing wrong with managing money on behalf of someone else - if you both agree to it. And they sign an affadavit…brokers will need you to have limited liability before you get a PAMM account”

“No qualification needed, and no need to notify regulators under a certain amount.
The minute you start pooling funds it gets much harder.
But with a PAMM acccount the hardest part is you will need to set up a ltd company.
You did need to get a client to sign an affadavit though - which are actually readily available on some broker sites
Also no outward advertising”
https://forums.babypips.com/t/how-to-trade-someone-elses-money-in-the-uk/103619/32

I'm looking into this area myself - not an expert. Interested to hear views.