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Managing Accounts, but how to get started?

  • #1
  • First Post: Jul 1, 2007 10:13pm Jul 1, 2007 10:13pm
What regulations does one have to contend with when wanting to begin managing other people's accounts when trading Spot FX with an incentive fee built in?

I have read all sorts of conflicting information and have yet to see a very simple "how to" guide.

Essentially I believe I can land a few $10k+ accounts and would like to trade them while building up a track record. From the NFA site I gather that I can trade 15 people's accounts as long as the total $ in play is less than $400k before having to register them, no? With this would it be as simple as having someone open an account and then sign limited power of attorney?

Also, what limitations on advertising is there? Anyone who searches online for "managed forex accounts" has seen the myriad websites offering their services. But can an individual setup an LLC and do the same with SpotFX?

What I am really wanting to do is have a website that offers various traders educational services as well as managed accounts. Regardless of if I need it or not, I am prepping for the series 3 just for good measure. This is the one thing I have been the most confused about.

Anyone here gone through this type of setup at some point in their journey?
Any posts or PMs on the subject would be very greatly appreciated.
  • #2
  • Jul 2, 2007 1:53am Jul 2, 2007 1:53am
hmm i like to know about this too ....
  • #3
  • Jul 2, 2007 4:19am Jul 2, 2007 4:19am
Hello JF, lugmanz,

I'm onto the same journey as you right now, so maybe we could both win if we exchange some information.

From what I know, if you're in the US you need to file up to the NFA, but only if you exceed some requirements - I believe what you said with 15 clients and 400K are the correct numbers. Otherwise, all you need is a broker to provide the PAMM platform and you and the clients signing the LPOA.

Usually, all the paperwork is taken care of between the clients and the broker. They sign to open an account to the broker, they wire the funds to the broker, you both sign the LPOA and then the client can allocate their funds to be traded by you, knowing the risks involved bla bla.

Also, your fee plan is set up with the broker because the broker interface will deduct money and transfer them to your account, but the client must (of course!) know about it and sign for it, agreeing with the fee.

As for advertising, I think you can advertise however and wherever you want as long as you don't have anything to do with the NFA. You don't really need an LLC to do this, as you don't need an LLC for having an account at a spot forex broker, or market maker, call it whatever you want.

We should keep in touch and share the information we've got. I just filed my FXManager account request to Oanda at the end of the last week (on friday), completed a short questionnaire and I'm waiting for their response in 2 - 5 business days.

Meanwhile, I'm working for the website (profxsignals.com). My new project will be the home of free forex signals (really!), managed accounts service and a forex blog like I used to keep at dailyfx.blogspot.com earlier this year.

All the best,
Stefan
  • #4
  • Jul 2, 2007 4:28am Jul 2, 2007 4:28am
Quoting stefant
Hello JF, lugmanz,

I'm onto the same journey as you right now, so maybe we could both win if we exchange some information.

From what I know, if you're in the US you need to file up to the NFA, but only if you exceed some requirements - I believe what you said with 15 clients and 400K are the correct numbers. Otherwise, all you need is a broker to provide the PAMM platform and you and the clients signing the LPOA.

Usually, all the paperwork is taken care of between the clients and the broker. They sign to open an account to the broker, they wire the funds to the broker, you both sign the LPOA and then the client can allocate their funds to be traded by you, knowing the risks involved bla bla.


Stefan
If you use a brokers pamm they will require you to to have series 3. All your promotional material (advertising) will need to be submitted and approved by the NFA if you are planing on having any US clients. Including websites
  • #5
  • Jul 2, 2007 4:34am Jul 2, 2007 4:34am
Quoting turbokaos
If you use a brokers pamm they will require you to to have series 3. All your promotional material (advertising) will need to be submitted and approved by the NFA if you are planing on having any US clients. Including websites
Even though only I am not in the USA, but only my clients? <-- talking about the series 3 here
  • #6
  • Jul 2, 2007 4:35am Jul 2, 2007 4:35am
Quoting stefant
Even though only I am not in the USA, but only my clients?
Correct and different brokers require diff account min for managed fund IE: 2k

They might even require you to set up a US corp. This is why you see ODL Securities Limited (UK) and ODL Securities Inc.(USA)
  • #7
  • Jul 2, 2007 6:13am Jul 2, 2007 6:13am
Quoting turbokaos
This is why you see ODL Securities Limited (UK) and ODL Securities Inc.(USA)
So you're saying that ODL Securities Limited (UK) branch is not bound to those legal requirements as far as US clients go?
  • #8
  • Jul 2, 2007 8:25pm Jul 2, 2007 8:25pm
Quoting turbokaos
If you use a brokers pamm they will require you to to have series 3. All your promotional material (advertising) will need to be submitted and approved by the NFA if you are planing on having any US clients. Including websites
Why is that? Does acting as a pool negate the 15 person less than 400K rules from the NFA?

Also, if you are using a LAMM account with less than 15 persons and less than 400k does that mean that I can just start a website that bluntly states that I manage FX accounts (while adhering to the anti-fraud regs in place for everyone)?
  • #9
  • Jul 2, 2007 8:36pm Jul 2, 2007 8:36pm
Quoting WTB
So you're saying that ODL Securities Limited (UK) branch is not bound to those legal requirements as far as US clients go?
US citizens have to open account with ODL Inc.
  • #10
  • Jul 2, 2007 8:40pm Jul 2, 2007 8:40pm
Quoting JFX81
Why is that? Does acting as a pool negate the 15 person less than 400K rules from the NFA?

Also, if you are using a LAMM account with less than 15 persons and less than 400k does that mean that I can just start a website that bluntly states that I manage FX accounts (while adhering to the anti-fraud regs in place for everyone)?
That assuming you are managing all the funds in one account . But if you plan to have broker allocate the funds LAMM or PAMM it not going to happen w/ out a 3. Pick up the phone and call any broker and make sure your talking to someone from compliance and not the $2hr sales monkey hoping your going to open a mini account.
  • #11
  • Jul 3, 2007 6:27pm Jul 3, 2007 6:27pm
Quoting turbokaos
That assuming you are managing all the funds in one account . But if you plan to have broker allocate the funds LAMM or PAMM it not going to happen w/ out a 3. Pick up the phone and call any broker and make sure your talking to someone from compliance and not the $2hr sales monkey hoping your going to open a mini account.
Here is an email I received from FXCM:

You are not required to be registered with the NFA to manage any amount of clients or equity for spot FX trading. However, it is recommended by FXCM that you do obtain a series 3 license and register with the NFA to help legitimize you business in the eyes of your potential clients. You do not need to do this, though, prior to becoming an introducing broker. Additionally, you can advertise your managed funds business through your website and in print. Do you have a fee structure in mind that you are intending to charge clients for managing funds?

For the education part of your business, FXCM will compensate you through pip rebates on the trading activity of your clients. The rebates that IB's receive range from .25 pips to 1 full pip on each round turn lot traded by the clients, the range being dependant on the amount of business the IB is bringing to FXCM.

I hope that this answers your questions, please let me know if there is anything else I can assist you with.
----------------------------------------

Is this correct?
  • #12
  • Jul 3, 2007 6:36pm Jul 3, 2007 6:36pm
Are you telling me both of you not only have a good enough track record but also one going back far enough to actually have people giving you Funds?

And if so, are they public? How many years? Returns? Drawdown? Any webpages with history etc etc etc?
Trust price. Know yourself.
  • #13
  • Jul 3, 2007 6:47pm Jul 3, 2007 6:47pm
Quoting SeekingLight
Are you telling me both of you not only have a good enough track record but also one going back far enough to actually have people giving you Funds?

And if so, are they public? How many years? Returns? Drawdown? Any webpages with history etc etc etc?
The nature of online posting is such that infleciton is not always understood when reading, so I am not sure why you would like to know. The legalities in place are such that even if one isn't affiliated with the NFA they must still adhere to the anti-fraud regulations of this country.

So in effect, it doesn't matter what returns are if someone is willing to let you trade their funds after proper disclosure is made. No?

My apologies if I misunderstood what you were trying to point out.
  • #14
  • Jul 3, 2007 9:11pm Jul 3, 2007 9:11pm
SeekingLight is just wondering if you REALLY know what you are doing.
At the very least you need to;
a) Be a CONSISTENTLY profitable trader
b) Have a proven track record (2 years minimum) and
c) You know what you're getting into. What about your clients, do they know what they are getting into?
... before you even think about taking other people's money.

Too many unsuspecting people fall prey to newbie traders who think they have found the holy grail, it happens all the time. I'm not saying that's you, but some very bright people have tried to make it in this market and have failed miserably. What do you have that they don't? I'm not trying to turn you off the idea, just being a realist.
There's a reason why these jobs are only filled by smart, capable, relaxed individuals.
Good luck.
  • #15
  • Edited Jul 4, 2007 12:12am Jul 3, 2007 11:53pm | Edited Jul 4, 2007 12:12am
Quoting bodge
SeekingLight is just wondering if you REALLY know what you are doing.
In a word, yes. I can see though how such a post could draw some attention
Quoting bodge
Too many unsuspecting people fall prey to newbie traders who think they have found the holy grail, it happens all the time. I'm not saying that's you, but some very bright people have tried to make it in this market and have failed miserably. What do you have that they don't? I'm not trying to turn you off the idea, just being a realist.
There's a reason why these jobs are only filled by smart, capable, relaxed individuals.
Good luck.
I understand the reasons to call to question or to forewarn one about a potentially treacherous endeavor. Also in my understanding is what is required and expected of one who manages O.P.M.

I have just found it a little baffling that getting the actual legal ducks in a row is so much easier in the spot fx realm of investing and compliance. It is just a little odd to me that, aside from the requisite capacity to trade on a certain level, setting up a managed fx company has very low barriers to entry in a $ sense.
  • #16
  • Jul 4, 2007 12:22am Jul 4, 2007 12:22am
Quoting JFX81
Here is an email I received from FXCM:

You are not required to be registered with the NFA to manage any amount of clients or equity for spot FX trading. However, it is recommended by FXCM that you do obtain a series 3 license and register with the NFA to help legitimize you business in the eyes of your potential clients. You do not need to do this, though, prior to becoming an introducing broker. Additionally, you can advertise your managed funds business through your website and in print. Do you have a fee structure in mind that you are intending to charge clients for managing funds?

For the education part of your business, FXCM will compensate you through pip rebates on the trading activity of your clients. The rebates that IB's receive range from .25 pips to 1 full pip on each round turn lot traded by the clients, the range being dependant on the amount of business the IB is bringing to FXCM.

I hope that this answers your questions, please let me know if there is anything else I can assist you with.
----------------------------------------

Is this correct?
Well you contacted a bucket shop and got a bucket shop answer. There policy on this obviously flips flops cause a friend of mine just set up and IB with them last year and he was required to renew and use his 3.

You couldn't pay me to trade threw FXCM. I would suggest contacting some institutional brokers that offer muti-bank platforms (MAN, GFT. ODL). Considering you plan on manging funds you should be dealing w/ enough $ to access hotspotfxi or CNX.
  • #17
  • Jul 4, 2007 1:34am Jul 4, 2007 1:34am
Quoting turbokaos
Well you contacted a bucket shop and got a bucket shop answer. There policy on this obviously flips flops cause a friend of mine just set up and IB with them last year and he was required to renew and use his 3.
So are you saying that they are lying about the law?

From what I gathered it seemed like FXCM would allow one to become an IB initially but that they strongly urge you to obtain your 3 and register with the NFA at some point.

Please go into more detail because I would like to know precisely what happened with your friend so as to help protect myself and anyone else reading this post. Feel free to PM me if you wish.
  • #18
  • Jul 4, 2007 1:43am Jul 4, 2007 1:43am
Would appreciate if someone could come up with the requirements and basic steps too. Could we have this as a sticky?
  • #19
  • Jul 4, 2007 2:15am Jul 4, 2007 2:15am
Quoting JFX81
So are you saying that they are lying about the law?

From what I gathered it seemed like FXCM would allow one to become an IB initially but that they strongly urge you to obtain your 3 and register with the NFA at some point.

Please go into more detail because I would like to know precisely what happened with your friend so as to help protect myself and anyone else reading this post. Feel free to PM me if you wish.
The bottom line there is no LAW. Its is at the brokers discretion but like I said if your managing funds I would assume you would be trading a 100k+ and if this is the case I really can't see what the point would be trading at FXCM and paying their spreads unless your plan was to churn and burn and make a little extra w/ IB rebate fee.

Out of all the brokers out there I would have question why you contacted fxcm? They maybe the largest retail broker but ask them to break it down by account size since they claim to be so transparent. I would bet there avg account size is less than 3k.
  • #20
  • Jul 4, 2007 2:28am Jul 4, 2007 2:28am
Interesting topic as I am also following a similar path. Here's what I've gathered thus far on registration with the NFA:

Pursuant to the Retail Forex Transactions Regulatory Guide by the National Futures Association (NFA) (page 3, section titled "Account Managers") and the CFTC Division of Trading and Markets Advisory Concerning Foreign Currency Trading by Retail Customers (page 3, section titled "Managing Retail Off-Exchange Foreign Currency Accounts" ), a person that manages the funds of retail customers held by an enumerated entity under the Commodity Exchange Act (banks, broker-dealers, FCMs - Futures Commission Merchants, affiliates of broker-dealers or FCMs, insurance companies, financial holding companies or investment bank holding companies - remark by Quant Trading, LLC), solely to trade in off-exchange foreign currency futures and options contracts, would not be required to register with the Commission as a CTA, but may do so voluntarily.

The emphasis of certain portions was personally added. Essentially, and unless I'm mistaken, if you're not planning on trading exchange-based products (CME FX futures, options, etc) and are solely dealing in the off-exchange FX markets, you are not required to register with the NFA. CTA registration is of course recommended, and is something every serious manager should look into doing to aid in attracting more clients.

The only registration that may come into play (and again, this is only if trading off-exchange) is state registration. This varies by state of course.

Another aspect gathered from a different source:
"Three key points to consider: 1) Custody, 2) Incentive Fees and 3) Discretion.

You must avoid custody of the assets to avoid state securities violations. The ability to withdraw funds directly constitutes custody. Limited power of attorney to trade and not withdraw may not provide safe harbor. To avoid custody you would need to send an invoice of fees that detail the fee amount, how it is calculated, the beginning and ending balance used during the 'measuring period', and the performance against an agreed upon index. The invoice must be sent to the client and the broker/bank/trustee simultaneously. The agreed upon terms of your management contract should cover these elements."


As others have recommended, I would work with an institutional platform, preferably with access to the institutional ECN FX pools (EBS, Currenex, HotSpotFXi, etc). Do NOT do business with retail FX brokers, ECN platforms only! I personally will be going with InteractiveBrokers and their IdealPro FX platform (with which I have extensive experience). They handle the entire managed-accounts process seamlessly (including fee sweeps while maintaining non-custody status of client funds). This particular feature truly sets them apart: "Separate accounts can be created for each advisor client, and a single order can be distributed among the multiple accounts using our share allocation functionality." This is a godsend since you'll be dealing with accounts of various balances, and thus, won't need to waste countless time calculating position sizes account by account for each trade.

I believe an LLC is required to setup an advisor/managed account at IB, since I'm going in with a partner there will be no avoiding that, but individuals may want to form an LLC anyway.

Let's keep this thread going, it would be beneficial if we all helped each other out.
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