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Managing OPM is a very messy, competitive business - ignoring the attracting funds to manage part, you have significant regulatory requirements to meet before hand.
I chose to trade for a firm instead of this route. At the most basic level, assuming you are a trader, I fail to see why you would want to take a 3% fee for the money you are managing, compared to 50%-90% cut of your own trading profits, using a firm's capital. The decision really comes down to your own goals and trading style.
A good friend of mine IS establishing a fund. Again, at the most basic level his reasoning:
- He is legally qualified from his prior background to manage money.
- His trading approach is a specific, low beta approach.
- He does not have any interest (or ability) to day-trade/short-term position trade.
If you do the math, assuming your trading style is scalable for a fund and also would be supported at a prop. firm (i.e. Not just being long/short positions for months) the point at which it is better to earn < 10% return on X dollars, compared with > 50% return on Y dollars is a LOT of dollars. X needs to be at a minimum 5:1 greater than Y. The question becomes what is easier for you - gaining access to 1,000,000 equity at a firm, or being given 5,000,000 to manage.
I would argue that being a successful trader is much simpler, but much harder. You can literally travel the world without a resume / CV, just your track-record. You are a licence to print cash for ANY firm.
SMW |
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Good points SMW; however.... managing OPM can be VERY lucrative. Much more lucrative than your personal deal at a prop.
And that's what managing OPM is about - MONEY. AND MORE OF IT.
Think of it like this - if you can do what you are doing now and just trade much bigger sizes, why not? A 3 pt trade on the ES is 3 pts no matter if that's on 5 or 500 contracts. Only difference is the amount of zero's behind the P&L.
I think you've painted a very bleak picture of OPM and it's simply not the case. If you find competent advisors (key word competent) it's not that bad at all. It depends on how much you personally want to do vs. paying someone else to do it.
And not to mention, there are MANY tax, retirement, etc advantages to running a fund and/or CTA setup for you and the clients.
It's really about whether or not you want to scale your trading up or not. That's it. It's much easier to become personally wealthy trading 500 ES contracts vs. 5.
Of course, you have to be able to make money at it too.