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Setting up a forex business/hedge fund

  • #1
  • First Post: Sep 21, 2006 12:02pm Sep 21, 2006 12:02pm
I am seriously thinking of setting up a forex trading business or hedge fund and would appreciate advice in doing so. Thanks.
"Loss and failure are inevitable but misery is optional"
  • #2
  • Sep 21, 2006 12:11pm Sep 21, 2006 12:11pm
There is a lot of great information on this site:

http://www.greencompany.com/HedgeFun...torFunds.shtml
  • #3
  • Sep 21, 2006 12:12pm Sep 21, 2006 12:12pm
Here's some info.....I do not know how much of your HEDGE FUND will be based on the FOREX and how would that change some of the current HEDGE FUND rules....but here you can have a good explanation:

<TABLE id=Table2 cellSpacing=1 cellPadding=1 width="100%" border=0><TBODY><TR><TD class=dict_mainterms colSpan=2>Hedge Fund</TD></TR><!-- What Does It Mean?--><TR><TD vAlign=top align=middle width="15%">http://i.investopedia.com/inv/dictionary/1.gif</TD><TD class=dic_termdefs vAlign=center width="85%" nd="1">An aggressively managed portfolio of investments that uses advanced investment strategies such as leverage, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

Legally, hedge funds are most often set up as private investment partnerships that are open to a limited number of investors and require a very large initial minimum investment. Investments in hedge funds are illiquid as they often require investors keep their money in the fund for a minimum period of at least one year. </TD></TR>INVESTOPEDIA:
<!-- End What Does It mean?--><!-- Start Investopedia Says--><TR><TD vAlign=top align=middle colSpan=2> </TD></TR><TR><TD vAlign=top align=middle width="15%">http://i.investopedia.com/inv/dictionary/2.gif</TD><TD class=dict_invsays vAlign=center nd="2">For the most part, hedge funds (unlike mutual funds) are unregulated because they cater to sophisticated investors. In the U.S., laws require that the majority of investors in the fund be accredited. That is, they must earn a minimum amount of money annually and have a net worth of over $1 million, along with a significant amount of investment knowledge. You can think of hedge funds as mutual funds for the super-rich. They are similar to mutual funds in that investments are pooled and professionally managed, but differ in that the fund has far more flexibility in its investment strategies.

It is important to note that hedging is actually the practice of attempting to reduce risk, but the goal of most hedge funds is to maximize return on investment. The name is mostly historical, as the first hedge funds tried to hedge against the downside risk of a bear market with their ability to short the market (mutual funds generally can't enter into short positions as one of their primary goals). Nowadays, hedge funds use dozens of different strategies, so it isn't accurate to say that hedge funds just "hedge risk". In fact, because hedge fund managers make speculative investments, these funds can carry more risk than the overall market. </TD></TR></TBODY></TABLE>
"Lunch ? Lunch Is For Wimps !"
  • #4
  • Sep 21, 2006 1:02pm Sep 21, 2006 1:02pm
as far as i know, hedge founds are regulated in very very limited way.

ie, you do as you please. most avoid taxes by operating in tax heavens and have high leverage and noone really knows how much money they have since they have agreements with various banks etc... (according to the scientist)...

anyway, you just need to convince people to invest in your fund.

thats preety much all.
  • #5
  • Sep 21, 2006 1:25pm Sep 21, 2006 1:25pm
Exactly, just use family or friends..... because, as Phil's link shows, once you spend the money to open the fund, you will have to wait some years to collect a good historical performance, since legally you won't be able to use your personal performance you gained as an individual trader.

In other words, it can take some time, also because before outside people (not family and freinds) will give you their money, they are not going to do it based on just one year of historical performance....they'll demand for AT LEAST 3 years.

Remember that one thing is to manage your money, another is to manage other people's money. The accounts will be huge compared to you trading for yourself, and the pressure can be overwhelming.

A bunch of investors are a pain the the ass anyways, and as soon as some trade goes bad they panic and demand you to do better and better.

Buffet started to do it on his own for family and friends, and eventually he got huge. That's the right approach in my opinion. Start little by little, and once you are really successfull, then consider making the financial and emotional effort to start up a real hedge fund.

MrFuture
"Lunch ? Lunch Is For Wimps !"
  • #6
  • Sep 21, 2006 1:28pm Sep 21, 2006 1:28pm
Quoting philmcgrew
There is a lot of great information on this site:

http://www.greencompany.com/HedgeFun...torFunds.shtml
Great Link. Thanks.
  • #7
  • Sep 26, 2006 12:58pm Sep 26, 2006 12:58pm
What sort of documentation is suggested to set up a fund with friends and family. Partnership agreement, private placement, etc? Thanks.
"Loss and failure are inevitable but misery is optional"
  • #8
  • Sep 26, 2006 1:15pm Sep 26, 2006 1:15pm
Quoting carmel
What sort of documentation is suggested to set up a fund with friends and family. Partnership agreement, private placement, etc? Thanks.

Great question...I would like to know that because i kinda do it under the table
Nothing is hard, some things just take more time and discipline.
  • #9
  • Sep 30, 2006 9:59am Sep 30, 2006 9:59am
Hi,
I am doing research into the legal but less regulated ways of setting up (me cash + U trade) groups. Since there are a lot of dirty water out there & I personally have had one friend of a friend loose over $750,000 to scam Forex & offshore accounts. Another (known to the first I guess) go to jail for just being associated & getting a % securities fraud.

So I might just stick to Real Estate. However I know someone from a totally / completely different circle then the previous mentioned people which you may have heard of, "Beau Diamond, 5min4x" that is basically doing a hedge fund under the table. - I'm raising hell and demanding he makes it legal while I stick one toe in.

But since I'm new to this entire field, You guys are the experts and I'm not.

Help!
Drew
It's all Good.....
  • #10
  • Sep 30, 2006 10:11am Sep 30, 2006 10:11am
Drew , yes, there are many scandals out there , even billion $ hedge funds going belly up,

please read my post entitled "Let the Professionals handle it" under the "Gold mine" heading. The firm I'm with is not huge , but very good customer service, financial performance incredible, and they have been investigated by several Millionaire clients= no problems.

Just somewhere to start. I have two clients with them.
  • #11
  • Sep 30, 2006 11:12am Sep 30, 2006 11:12am
Quoting wanthony
Drew , yes, there are many scandals out there , even billion $ hedge funds going belly up,

please read my post entitled "Let the Professionals handle it" under the "Gold mine" heading. The firm I'm with is not huge , but very good customer service, financial performance incredible, and they have been investigated by several Millionaire clients= no problems.

Just somewhere to start. I have two clients with them.
Dude, lay off the advertising. You have made 2 posts, both of which, are to tell us that you direct clients to professionals. I can only assume that you are compensated for your efforts.

Hedge funds do blow up. Just google "amaranth" and you can read about the latest natural gas fund explosion (weak pun but intended).

If you invest money in a fund that isn't registered with the CFTC and ultimately the NFA you are asking for trouble. If a money manager can't agree to abide by a governing regulatory agency then that says a lot about their character. This should be a red flag long before you consider their track record.
  • #12
  • Feb 26, 2007 11:43am Feb 26, 2007 11:43am
I have not posted here in a long time but I may be able to help a little. I believe that to trade for others you do not require licensing up to X amount of clients and X amount of funding. So for example you may be able to trade up to 9 other people's accounts for them and handle over a quarter million for them, but if you pick up more people or more money without regulation, you're asking for trouble like someone else said. If are you serious about this business, which is kind of the opposite reason most people trade (i.e. for more freedom and time to really enjoy life) then you need to get your series 3 broker license and start registering with the cftc. However, it is legal for you to handle money and manage other's money without licensing, just not a very large amount. There is nothing easy about running a business though, and if you commit to this idea you will understand that.
  • #13
  • Feb 26, 2007 12:35pm Feb 26, 2007 12:35pm
Quoting philmcgrew
If you invest money in a fund that isn't registered with the CFTC and ultimately the NFA you are asking for trouble. If a money manager can't agree to abide by a governing regulatory agency then that says a lot about their character..
Are you sure? Only US regulators are any good? I know you don't mean that really. But I do agree all legitimate funds are highly regulated in the country they are domiciled. Avoid Spain, Philipines, Thailand and a few others out there and elsewhere IMO though. And it helps if they speak in a language you undrestand!
Do not focus on making money; focus on protecting what you have.
  • #14
  • Feb 26, 2007 12:55pm Feb 26, 2007 12:55pm
Quoting ssteiner87
I have not posted here in a long time but I may be able to help a little. I believe that to trade for others you do not require licensing up to X amount of clients and X amount of funding. So for example you may be able to trade up to 9 other people's accounts for them and handle over a quarter million for them, but if you pick up more people or more money without regulation, you're asking for trouble like someone else said. If are you serious about this business, which is kind of the opposite reason most people trade (i.e. for more freedom and time to really enjoy life) then you need to get your series 3 broker license and start registering with the cftc. However, it is legal for you to handle money and manage other's money without licensing, just not a very large amount. There is nothing easy about running a business though, and if you commit to this idea you will understand that.

this isn't true
if you have a clearingfirm that takes unregistered IB's, there are still no regulations therein stating that you can only manage 9 accounts and a 1/4 million dollars, I personally am an unregistered IB, and I manage well over both numbers. until they change the laws to make it illegal for clearingfirms to take business from unregistered IB's, it would be dumb to register. why should I? so that the crooks at the NFA and CFTC can take my netcap requirement of 50K and limit me to the use of one clearingfirm? no thanks. ill keep my 50k right here and keep trading clients money, collecting my rebates, and taking my 25% at the end of the month, all unregistered also. it doesn't matter as long as your FCM (futures clearing merchant) is registered with the NFA. some FCM's take only registered IB's, which means you need a series 3, which i have had in the past but let expire, in order to manage funds.
it really all does boil down to sales though, you gotta close deals. also you cant suck at trading because if you do then you will have to consistently bang the phones to get new clients, instead of letting the money pile up to a level where you dont need to trade that often to make a great living.
this can be done, it takes time and hard work. i have done it on the forex side, not hedge fund stuff. if the guy who started this thread wants to know more PM me.
  • #15
  • Feb 26, 2007 1:02pm Feb 26, 2007 1:02pm
also.........i am not saying that 9 clients and 1/4 million are the limits to go buy, i am saying there are no limits and i am proof of that, there have been times in my career where i have managed over 10 million and had no problems. its all about the clearingfirm.

also, its not that hard man
if you are a good salesman and a good-great trader, you can make it happen, when i first started i was a great salesman and an ok trader, then funds build up and you do a little homework and next thing you know you are great at both

its not rocket science though, and im sure you will be doubted by others, but it worked for me, and although i am better than most, i am sure as shit there are worse traders that make it work
  • #16
  • Feb 26, 2007 1:18pm Feb 26, 2007 1:18pm
Quoting pipple
Until they change the laws to make it illegal for clearingfirms to take business from unregistered IB's, it would be dumb to register.
Sir, good luck to you. However, it is illegal anywhere in the EU for you to solicit investments as an unlicensed IB. You cannot be an IB in the EU unless you have passed several exams. However, there are many unlicensed firms operating on the fringes of EU law by various dubious arrangements. And why not? If it's ok in the US then it's ok everywhere? So perhaps the moral is US investors should only do business with licensed and regulated IBs who place business only with duly authorised FCMs. Perhaps in the UK? Now that will open a can of worms, won't it? Perhaps the US is not as safe as most living in the US would like to believe.

It really is a ridiculous situation to have 100s of unlicensed IBs in the US. Nearly as bad as regulation S stock! But pipple, make hay while the sun shines and I'm sure your track record speaks for itself. It's just a shame that so many IBs make then up. Present company excluded of course!
Do not focus on making money; focus on protecting what you have.
  • #17
  • Feb 26, 2007 9:16pm Feb 26, 2007 9:16pm
Quoting pipple
also.........i am not saying that 9 clients and 1/4 million are the limits to go buy, i am saying there are no limits and i am proof of that, there have been times in my career where i have managed over 10 million and had no problems. its all about the clearingfirm.

also, its not that hard man
if you are a good salesman and a good-great trader, you can make it happen, when i first started i was a great salesman and an ok trader, then funds build up and you do a little homework and next thing you know you are great at both

its not rocket science though, and im sure you will be doubted by others, but it worked for me, and although i am better than most, i am sure as shit there are worse traders that make it work
How do you keep records of your clients ? How do you convince your client that you are not going to run away with their money ? Do they sign any disclaimer/agreement ?

Great to hear your story, I'm thinking of doing that one day.
  • #18
  • Feb 26, 2007 10:07pm Feb 26, 2007 10:07pm
Quoting Why Oh Why
Sir, good luck to you. However, it is illegal anywhere in the EU for you to solicit investments as an unlicensed IB. You cannot be an IB in the EU unless you have passed several exams. However, there are many unlicensed firms operating on the fringes of EU law by various dubious arrangements. And why not? If it's ok in the US then it's ok everywhere? So perhaps the moral is US investors should only do business with licensed and regulated IBs who place business only with duly authorised FCMs. Perhaps in the UK? Now that will open a can of worms, won't it? Perhaps the US is not as safe as most living in the US would like to believe.

It really is a ridiculous situation to have 100s of unlicensed IBs in the US. Nearly as bad as regulation S stock! But pipple, make hay while the sun shines and I'm sure your track record speaks for itself. It's just a shame that so many IBs make then up. Present company excluded of course!

its up to the clearingfirm, which is registered, to decide who they do and do not take on as an IB. for example, back when i applied to my 2 FCMs as an IB, they saw that my commodities liscence was spotless, and so that probably influenced their decisions. If and when laws change, I'll just have to go get my series 3 again and register. It wasn't a very hard exam, I think a lot of people in this forum could pass it. Until then, it would be silly of me to take the time and re-test because once i do, like i mentioned in an earlier post, i will have to post netcap requirements, and that can be pricy. however, if they change the laws, i would have no choice because this is my passion and luckily the way i make a living.
i agree with you that it is a shame that firms make up track records,however the NFA here in the US monitors the websites of unregistered IBs, and they CAN AND DO fine clearingfirms all the time for misuse of information or misrepresentation, just check the NFA website and you will find a fine or two recently for this stuff, out of respect i will not mention these firm names, im sure you guys will find them if you do some digging! for example, if an IB claims they do not get paid unless the client makes money, that is a lie, they (and I) get rebates on enlarged spreads, per trade. now, if an unregistered IB becomes a constant fine for the FCM, obviously they will shape up or ship out. so even though on paper it looks like the IB isnt registered, that doesnt give them the right to turn their firm into the wild west with no rules to follow, unless of course they are just trying to make a bunch of money and run. also no offense taken, but in my case its not quite "making hay when the sun shines", i will do this for the rest of my life, whether i am unregistered or i have to get registered, i get more referral business than new business for a lot of different reasons than just my performance.

cheers to you why o
i was watching your bag it tv the other day, pretty cool how you set that up.
later
  • #19
  • Feb 26, 2007 10:16pm Feb 26, 2007 10:16pm
Quoting luqmanz
How do you keep records of your clients ? How do you convince your client that you are not going to run away with their money ? Do they sign any disclaimer/agreement ?

Great to hear your story, I'm thinking of doing that one day.
i keep records of my clients in folders just like if i was an accountant, their account documents, money in/money out sheet, all the normal boring crap.

they dont send me money, they send it to one of my two registered clearingfirms, so although i have access to trade it, i don't physically have access to it. when their account gets activated, it goes into one of my 2 platforms, and then i trade it along with the others. i cant make withdrawals or deposits though, now that would be asking for trouble from some crooks out there i am sure!

each client signs a power of attorney that lists me as the trader, they also sign account docs and a commission agreement, i usually charge between 20-30% of gross monthly profit, but i dont charge them per trade, because i get a few dollars back per trade from the clearingfirm, it doesnt matter how many trades i do in a month, just whatever the new balance is at the end of the month minus the balance at the start of the month is what i get a piece of, and if that number is lower, i get no commission, just the spread rebates. people like being charged this way cause i have to perform. also they get a password and a link to their account so they can always check on it if they dont want to call me and ask.

i hope this explains better to anyone on this forum looking to become a forex broker/money manager for a living, you can trust the stuff i am telling you i know this business inside and out.
  • #20
  • Feb 26, 2007 10:21pm Feb 26, 2007 10:21pm
Quoting pipple
No offense taken, but in my case its not quite "making hay when the sun shines", i will do this for the rest of my life, whether i am unregistered or i have to get registered, i get more referral business than new business for a lot of different reasons than just my performance.

cheers to you why o
i was watching your bag it tv the other day, pretty cool how you set that up.
I'm glad no offence was taken - none intended. My backgound was financial services - sales to expats and UK armed forces - and referrals were the only way to operate successfully long term. That will be an over-riding factor in your success. Sir, I wish you good luck. I'm still involved but have taken a back seat - there are better people than me to run a company!

Thanks for your kind words on Bag TV - sometimes I think I have too much time on my hands. I just wanted to see if I could get it to work and it's useful for me to have a quick look on my tablet when I'm out and about. It's a bit intermittent though.
Do not focus on making money; focus on protecting what you have.
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