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I've only ever traded my own money but I imagine it would be very difficult to trade family or friends money. I assume the money would be given to you on the understanding that you know what you are doing. This involves a certain level of expectation and therein lies complications such as a loss of reputation and trust, on top of which it could be very damaging to your ego should you lose. I don't think I would care if it was prop money as there would be no personal consideration to contend with.
On the question of it being good or bad I have two thoughts:
It is a bad idea if you have not proven yourself in a live environment on the hard right edge, and are either using family or friends money attempting to recover your own past losses or simply taking a chance that this time it is going to work.
Good idea if you have a proven record in a live environment on a consistent basis and the people fronting the money are well aware of the risks involved ie. That they could lose it all.
So in my opinion it depends but I lean towards it being harder psychologically.
I would be willing to trade a prop firm's money because the relationship would be purely a business one, and all parties would be aware of the risks and realities of trading. I wouldn't feel bad if I lost their money, and they wouldn't feel bad if they canned me.
But would I want to have a friend or family member say to me, "I was going to use the money you lost for my retirement?" Nope. Not even if we had discussed the risks a hundred times. Just nope, I wouldn't want to be there.
And since I wouldn't want to lose anything, I doubt that I would trade very well either.
My first response, gut instinct, is that trading is not about money. It is about a process and just keeping that process going and improving upon it.
But, with the money involved somehow.
If I traded someone else's money, and I pretty much do that, I would let them know it could all go up in smoke, maybe even faster than they could imagine. I would make sure they understood the concept of risk capital. If they did, after having them sign a notarized agreement at the least, I would discuss what would be done if capital is lost and what would be done if capital is gained. It would be entirely up to them when to stop. And, I would remind them any capital is always at risk and there can be drawdowns. I would be very careful that my job relative their money would be just attempting to make more money, not managing it, ie I would be very hyper-vigilant about responsibility-creep.
Maybe I would tell them to read Fooled by Randomness.
Also, I would set it all up as their account so if the black swan swooned down it would be all on them.
It is difficult enough to manage your emotions in trading. Then to add pressure and responsibility would push me over a cliff so to speak. I do not like losing my money but I answer to myself (and my wife ha ha).
I have traded with a prop firm in 2011 and didn't have one problem with the business relationship.
I trade other people’s money, but I don’t trade other people’s money. Let me explain. For a percent of their gains, considered consulting fees, I allow others to trade using my strategy. They set-up their own account and I give them access to trade my strategy, but only as a buyer and seller. They cannot modify the strategy and I don’t have access to their account.
This is good for 2 reasons. First, any losses to capital in their account can not be blamed on me. And second, the client feels more in control because they have control over how much, when, and how often they want to buy. Plus, they can take the money out whenever they want.
Lastly, if anyone thinks this is a great idea, people investing in your portfolio. It is great, BUT, Yiu also have to care about helping less experienced people understand how to manage their money and answer questions about the investments they are holding.
And lastly, stick to your rules and trading mantra. That’s what people want to invest in.
Plan your trade and trade your plan.
After having a day to think and read other people's replies to this thread, I wanted to add some more thoughts.
First, if you've opened this thread, you should read many of the posts here. Very informative and educational.
Second, I 100% agree with everyone's post about trading family money. I don't and wouldn't do. Don't have the psyche to deal with losing family money.
Third, Unless your a professional trader and/ or have the tools/ skills necessary to be competitive when entering and exiting trades, you shouldn't be trading other people's money.
And lastly, I don't trade other people's money, I just allow people to access my strategy to trade in their account, but they don't know how the strategy works.
Trading for a prop firm is okay - that's one of the options for a professional trader.
Family and friends? Never. The reason is that very few people understand futures trading. If they invest in a hedge fund or a mutual fund, it's fairly easy to understand the metrics. Historical data means something. In futures trading, history doesn't mean much except in terms of market profile perhaps. Even a good algorithmic system can have wild swings or totally stop working. Crap happens in this business. I would hate to sit over the dinner table trying to explain why a trade went bad.
This business is very high risk and very high reward. And it's not easy staying on the right side!
