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Pro's and Con's: Trading with other people's money
Most investors will be concerned over any drawdowns, even in a conservative ETF portfolio, even more with futures.
Most money managers spend a lot of time reassuring investors when markets are volatile. I would find this tedious and it would surely impact my own mindset.
I get questions about investing all the time from friends and family. I generally give them much more conservative advice that I do in my own trading -- I don't want to go there with options and futures.
Can you help answer these questions from other members on NexusFi?
If you can't trade for others, how can you trade for yourself? It seems your ability to trade should not be dependent upon the source of the money traded.
This also get complicated very quickly. Do you have honest, clear, and practical reasons to expand your business to others? Will it improve your trading or add stability...? Is there benefit?
Some may find that working for others motivates them. Other may find it an interfering distraction. Like trading, each person will do it differently.
The market is an impartial arbiter. It has no mercy or thought. What you do with it is up to you.
Saying yes or no to any of these questions may give us an idea where sentiments lie but cannot answer for us.
As a trader I must make a decision and ultimately live with the consequences of that decision. I hope I can answer these questions just as I would when making a trade.
My plan regarding "trading for family" is:
1. Create trading account in name of family member (namely, adult child) with my having rights to trade account as trading attorney-in-fact.
2. Fund account with my own money as a gift.
Result:
1. Monetary cost to me is initial funding amount.
2. All profits and losses and their tax results go to family member.
I would not trade other people's money or for non-family member except if I were in a prop firm or similar arrangement (which I have no desire to do).
Or if you cannot trade for yourself, how can you trade for others? And by others I specifically mean people you know personally, not a prop firm where it's their money but no real relationship.
The ability to trade can be totally dependent on the source of the money. A person can get used to and learn to handle the 'pressure' and psychological factors of trading one's own money. Once trading a family member's money, etc, comes into play, you have a totally different kind of 'pressure' and psychological factors come into play. You're decision making would be influenced in ways that it wouldn't be with your own money. And if anybody says it won't or shouldn't, that's just being naive.
Having said that, there are some traders that probably happily do it and might have overcome those factors. But to say the source of the money had no effect at all isn't so IMO. Heck, just going from paper trading to trading for real is a huge psychological difference, much less trading a family member's or friends money added to it.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
Thanks Received: 10,207
There's also a difference between being able to trade friends & family money efficiently, and wanting to trade it. I think I could, but I still don't want to.
Trading: Primarily Energy but also a little Equities, Fixed Income, Metals and Crypto.
Frequency: Many times daily
Duration: Never
Posts: 5,049 since Dec 2013
Thanks Given: 4,388
Thanks Received: 10,207
I was using efficiency in a similar manner, to describe their results relative to my results, meaning their results would be 100% of mine. In other words that I would do as good (or bad) a job as trading other money as I would my own. But I was also saying I wouldn't want that responsibility especially if it was family.
I was not in anyway implying that my trading was efficient, when compared to any metric.
I'm technically doing a mix of both, and I like that.
On one hand, having significant skin on the game motivates you to work harder than you would for someone else's money.
On the other hand, having your capital base cheaply "leveraged" by someone else's money also increases the profit motivation and magnitude of the opportunity. I also find having someone else's capital as a buffer that defers short-term personal downside allows you to make calm, mathematical decisions. (It's like the Ender's Game effect, where you feel more like you're playing a game of numbers with other people's capital rather than your own.)
