Question of the Month, August 2008

[AsstModerator]

This month, a member wrote in and said he wanted advice on starting a trading room, but that he didn't mean an online trading room. I asked what he meant, and it turns out that he wants to create a managed accounts service with a number of traders working together. I'm not sure if he only meant physically in the same room or if a virtual room would be sufficient. Either way, I gave him what advice I could.

I suggested he ask traders to submit some trading history to see if they can make money and control risk at the same time. Those that pass would get an interview. I also asked him to read an article about managed forex here at the FPA's website...

https://www.forexpeacearmy.com/fore...ose-all-your-money-managed-forex-account.html

There is still a lot more information needed to do this right. Does anyone else have any suggestions for this person? Should I just lock him in a small room with Nancy Cheah, Ernest8Fingers, Cyclon and Pharaoh?

 

[Pharaoh]

I like the idea of locking him in a small room with most of the FPA's sergeants.

There's so much more to this. There should be solid risk management rules for all traders in the group. There should be at least one person who's sole job is to monitor performance, both to see who is doing well, who is doing worst, and who might be taking too big of risks with client money.

The leader of this group needs to decide which brokers and platforms will be supported and what the terms of will be for the standard LPOA that clients will be asked to sign.

I'm sure there's a lot more, but that's all that leaps to mind at the moment.

 

[Dollar-Reaper]

You asked.
Any successful self-respecting broker would veer away from the formation of a managed scheme, as that is what it amounts to, and rather base successful trades on his/her personal skills base.
Of course if there were poor or no skills, then the next best option would be to create a skills base to fill the void.
Personally I don’t see myself fitting into that pot. I do just fine on my own, I will render help where I can, but I do not mentor or get involved in schemes.

 

[John Wimberley]

The concept has merit, but it sounds like he wants to manage accounts by committee instead of individual trader with a client base.

 

[Pharaoh]

John,

That's hard to say from the info given. I don't know if this guy has a trade plan and wants to adapt traders to it or if he wants to take good traders and make them into a better team. Each concept does have its merits.

The Turtle Traders were taught to follow a strict and successful set of rules for options trading. In the Diamonds room, I've seen Sir Pips and others work together to do more than each could alone. Of course, I'm sure there are more than enough examples of abysmal failures with either concept too.


$ Reaper,
Self-respecting brokers are always happy to have someone else manage accounts at the brokerage. Some may require a minimum level of qualification or registration, but most don't. They just want as much money in the system as possible. Of course, the bucketshops prefer that whoever is trading the accounts to be losing, since this benefits them more.

Personally, I prefer to make or lose my own money, but there are a lot of people out there who are more than ready to turn control of money or an account over to an account manager.



Of course, the question on the table today isn't whether someone should do this, but how could a person best approach doing this.

 

[Music Man]

I suppose one could simply hire traders and provide them with clients and hope that the traders do well for the clients. If the traders are good, the returns speak for themselves. If not, they'll probably end up here in the reviews section with a bad rep.

I've seen web sites trying to recruit traders online. The requirements seemed mostly to be that you know how to scalp and not vary from "the plan". This doesn't seem like a bad approach, so long as the risk management is sound. It seems like one could teach a company risk management practice to a trader easier than you could make a trader from scratch, so to speak. Many folks are not meant to trade.

If I were gonna take on accounts, I wouldn't hire traders. I would trade them myself. If that got to be onerous, I would devise an EA to follow my strategy and sell robot-managed accounts - "insert catchy slogan touting EA here". I would program the EA myself and it would have to do no worse than me before I would sell its services.

There is no danger of this happening on my part soon, but who knows?

MM

 

[revival]

Regarding the trading room, a better idea will be: Any time he has a trade set-up or ready to make a trade, he shld broadcast it to this community for general consensus ( either for or against & why ) and if there is no response within 10 mins, he shld go ahead & execute the said trade. In this way, we then know our own individual strength & weakness and learn from each other. What say u ?

 

[Ken Long]

If he has to write in and ask, he certainly isnt ready...

Who's going to organize and run multiple traders, multiple trading accounts, an office, with bills and taxes and accounting??

Work on your own trading and learn to manage the accounts you already have. If your good enough you'll have no problem growing your own account to absurd levels and spliting multiple accounts off of it. Then your only choice willl be who you are going to gift with your extrordinary abilities.

 

[clem699]

I think that the fellow should be explicit enough as to state what he wants.I agree with Pharaoh on the shortcomings of the two approaches which he mentioned.(1)that if he already have a trading strategy,the purpose of team work may be defeated,he could as well have done it alone.(2)if he is to rely on inputs from every member of the team,who will accept responsibilities should anything goes wrong?

I feel the wise thing to do is to either sell robot managed accounts based on his trading strategy.This method is easy and cost effective besides it will put him in control and responsible for his actions or (2)he should manage clients accounts by trading manually.

 

[5of7]

I have a unique perspective. Because I can see the account balances, I can tell who is doing well and who isn't. There is no hiding. Please don't ask me to reveal specifics about the following examples.

Here are some of my observations of what I've seen:

I know one group who started a managed accounts reasonably recently. What this guy did was hire different traders. Then each trader was given a portion of the client's accounts to trade. I know money management is important to them because their traders yell at me about it all the time. They do really well, and I watched as they just recently gave their clients huge chunks of cash from winnings, and the management team got their own huge chunks. So the multiple trader thing worked.

Another group did a similar approach but with EAs. They have lots of EAs of their own, use commercial EAs, and are constantly testing new ideas. So each EA is like a new trader. I know they have amazing money management among the EAs and constantly manage the EAs. He has a team of techs that watch their servers in shifts covering 24 hours, and he is always measuring the EAs. They have good days and bad days, but always make consistent gains.

Hope that gives you some insight into things that I've seen work for sure in terms of actually generating profits.

Trader 5of7