Trading other people's money

Quick question for everyone out there. Does anyone know a good source on the law and legal ramifications with regard to trading other people's money. I am in the United States and the people I would be trading for are also in the US.

Example: Friend has been watching me trade for the last 2 years and want's to give me $10K to trade for him. He fully understands the risk and that it could all be lost.

I would take possession of the money and trade it in my account. In essence it becomes mine, I'm liable for taxes on it etc. I keep track of it and report to him how it is doing from time to time. When he wants money back I make a withdrawl and give it to him. Issuing a 1099, as needed.

i think you need a series 3 license

You need to do your homework:


cftc

nfa

You might also look into setting up a corporation with the both of you holding stock based on your percentage agreement. You can trade in the name of the corporation and any profits can be issued as divdends. Talk to a good CPA regarding the tax consecences for this scenerio.

Also have a lawyer draw up a partnership agreement so there's no questions about the division of funds and the risks involved. If your profitable it won't be necessary, but if there's a drawdown you will be happy you have it.

To make things simple, just open a seperate account for your friend, where you are also allowed to trade on. I've seen that option on the InterbankFx application form. I don't know whether other brokers has that option. Don't forget to put all agreements in writing.

Good Luck
Habeeb

Thanks for all the great replies. I use Interbank and they offer a multi-account manager application for Professional Money Managers. Something I might consider.

I do have a lot of homework to do in this area (my focus over the last few years has been learning and trading my own money).

The other thing that you will need to consider is what effect trading some one elses money will have on your psychology. You also need to consider how you will feel about losing other peoples money and having to answer their calls asking 'How did trading go this month' and your repsonse is 'We are down 10% for the month'.

Simon

Excellent point. Been there. Done that Got the.. etc
Good reason not to have them in separate accts. It can alleviate matters when you inform them "Me Too."

When they want to buy you things because they are Up >50% you don't necessarily have to tell them.. "Me Too." Just tell them. "That's why it's costing you 'x' to have me look after the Speculative portion of your RRSP. {40 whatever K} Let's go for a beer and watch the game instead."

I don't know what to answer. Forgive me.