My understanding is that to start and run a proprietary trading firm, one does not need to get a Capital markets license or a hedge fund license, because only the shareholders' capital is going to be traded.

I plan to start one such small proprietary trading firm(<20k$). I intend to raise money from friends and family. As I'm raising funds from people who are technically unrelated to the firm, do I need to get a license?

How do prop firms generally raise capital without a license?

That depends on the jurisdiction.

Some jurisdictions only allow you to do something without a license, if limited number of people
and the money is above a certain level.

Where most of the jurisdictions have the tightest regulations, is when you try to attract a lot
of little investors (retail), as the lawmakers assume this is the category of people that need
the strongest protection.

I suggest you get legal advice for your region.

Start reading about incubator funds. These are what I think you're looking for (your own money, without big $$$ of full hedge fund). If you're successful, then you can convert it into a full fund. As soon as you trade other people's money, you have to become a full blown fund. Full blown funds allow slots for friends and family which can be different terms that your standard well qualified investor.

You might look into the Friends & Family/Financial Advisor accounts at Interactive Brokers. They allow you to trade multiple accounts with a few ways to allocate trades across them. I don't think it's a practical way to run a hedge fund, but it might help get you started.


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