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[cthorne]

I have been asked by others if I would trade money on the Forex for them. Is this legal or do you have to be licensed like a broker or some other type of license?

[JAKE986FS]

http://www.nfa.futures.org/

[jeffizcool]

Thanks JAKE986FS.
Another question I always pondered upon.
How does the client fee structure usually work out with the broker, the CTA and his client?
Do you(the CTA) usually specify to the broker what your aggreement is within the POA and then the broker complies with that. like for instance you agree with your client to share 25% of the profits every month so can the broker automatically deduct that 25% from your client and then put that amount into your own personal account with the broker?
Thanks any help is appreciated.

[JAKE986FS]

http://www.nfa.futures.org/

[jeffizcool]

Thanks Jake.
I think you can to a certain extent but i am not sure.
I am getting this info from reading below from gain capital's website:

(http://www.gaincapital.com/forex_mon..._services.html)
"As a money manager, you have the option of establishing you own cash- or pip-based fee structure for your clients. These fees can be customized on a per-client basis or by trade definition.
"
I tried to read other broker's websites to get a more clear picture but I did not see anything else. Maybe I should ask the brokers directly. Have a good day and thanks for the help.

[Ray G]

Jake already covered the power of attorney part, but I'll reiterate it; most retail brokers that I've checked out provide for this.

As for charging the clients, when I've been approached by people to trade, I've always considered a simple wrap fee. Your full service broker with the big managed money accounts charges such a wrap fee at around 1% to 2%.

This may not sound like much but it "wraps" the entire account so as the account grows, so does your take-home. If the account shrinks, well, they'll probably be looking for a new CTA anyway. A handful of clients with growing accounts, and the CTA trading his own account as well, that's a decent living.

As for the legalese of how those fees are extracted, I don't know but will be curious as to what others might come up with.

[psytrader]

Is it legal to set a minimum investment for the 15 clients?

If I were to charge a flat 20% fee on net profit. Then I obviously want to have as much money under management as possible.

Would it be legal to drop a 5k client in order to take on a 25k client?

[JAKE986FS]

Again, check with your broker or the NFA for a more detailed ruling.

[Ray G]

I think those things would be legal. At that low of a level of interaction, if the client agrees to it and there's nothing that could be construed as misleading or fraudulent, it should be fine.

The thing that would get the various alphabet soup of authorities on a trader's case would be open solicitation. Imagine if the Trader sent a friendly email to a friend of a friend that he heard might be interested in his trading services. And then this new client loses money. He, the client, could claim that 1) his business was solicited and 2) he never knew foreign exchange could be so risky.

Number 2 would put the icing on the cake of number 1. In other words, this new client would have never had the opportunity to lose his money if the Trader hadn't solicited his business.

So no "official" correspondance with prospective clients, no "Just give my buddy a call, he'd love to get in on this" type of business. Have your buddy call me, would be the correct response and then make sure everyone signs a boilerplate disclaimer about the risks inherent in currency trading while they're signing their POA.

[JAKE986FS]

CHECK WITH NFA OR THE CFTC.

[psytrader]

Originally Posted by JAKE986FS

Yes, you can set the minimum where you want as long as it is with the brokers lower limit.

My understanding is that if you were to drop an account you cannot fill that position from one year to the date of the last trade made on the account that you dropped.

So if you had 15 clients and you dropped one or one left the block account you will not be able to fill that position until a year later.

You are also limited on the amount of money that you are able to trade.

For example, if the CTA had 15 accounts, three of which were fully
funded, the CTA could treat the rate of return of the three fully-
funded accounts as representative of all 15 accounts as long as the two
tests were met. Thus, if all 15 accounts had nominal account sizes of
$100,000, the first standard would be met by the three fully-funded
accounts--i.e., $300,000/$1,500,000 is twenty percent, which exceeds
the ten percent minimum. This test could also be met by one
sufficiently large fully-funded account. If each of the 15 accounts
experienced gross profits of $10,000, the gross trading profits ratio
of the subset would be the same as the gross trading profits ratio of
the aggregate, meeting the second test. Advisory 93-13 explicitly
permitted a number of adjustments and exceptions to these two
standards. For example, an account could use the fully-funded subset
method despite failures to meet the ten percent test ``for a limited
number of periods.''
Advisory 93-13 ameliorated disclosure problems for those CTAs that
had sufficiently fully-funded accounts to meet the ten percent test.
Commission staff nonetheless have increasingly encountered
circumstances where CTAs have lacked (or lost) sufficient fully-funded
accounts, but where disclosure based on actual funds levels would be
misleading or confusing.
2. Proposed Changes to Commission Regulation 4.35(a)(6)(i) To Adopt
Nominal Account Size as the Denominator in the Rate of Return
Calculation
Existing Commission Regulation 4.35(a)(6)(i) requires that, in
presenting past performance to prospective participants, the rate of
return for a period be calculated by dividing net performance by the
beginning net asset value. The proposed amendment to Regulation
4.35(a)(6)(i) would require that the rate of return be computed by
dividing net performance by the nominal account size at the beginning
of the period.\14\ It is the proposed change in the denominator of the
rate of return computation--from net asset value to nominal account
size--that underlies the framework for performance presentation set
forth in the rule proposal.

Again, check with your broker or the NFA for a more detailed ruling.

Im not sure if I completely understand, but I will give an example of what Im thinking to clarify.

Client 1 starts with 10k and sees a 200% annual return ($20,000 profit w/30k equity)

Client 2 starts with 20k and sees a 200% annual return ($40,000 profit w/ 60k equity)

Client 1 = 20,000 x .20 = 4,000 in fees
Client 2 = 40,000 x .20 = 8,000 in fees

End Result

Client 1 = 26,000 in equity
Client 2 = 52,000 in equity

Manager = 12,000 collected

I can definately see where you are going with the friend of a friend story Ray.
I think the tactfull thing to do is to tell the friend that "I brought you in because you are a friend,...Im really only looking to deal with accredited investors because Im not allowed to have you solicit for me."

Regards

PSY

[Ray G]

Interesting, I'm NASD licensed and I didn't realize that the Overseers were digging that far into our personal interactions.

Maybe we should study the NFA website in more detail and put together a thread on the basic parameters of starting a small fund. London's closed Monday, that might be a good time to dig.

[proedge_joe]

They also have a Management Fee: usually 1%- 2%
and an Incentive Fee: 20%-25%

[fcmtrading]

Forex has different rules than commodities.
Got to the NFA website, (which regulates Forex trading in the USA),
for further information. They have a special site on Forex Trading.
Happy Trading
FCM

Originally Posted by cthorne

I have been asked by others if I would trade money on the Forex for them. Is this legal or do you have to be licensed like a broker or some other type of license?

[proedge_joe]

Or go with POA.

Do you know these people?