Hedge Fund Broker

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Jun 5, 2008 1:54 pm

Hello All,



I am a registered representative for a bank broker/dealer. I don't trade in my current position. I met a trader who is starting a hedge fund w/1MM later this year and asked if I would like to be the broker. This is the strategy:<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />



"I will enter the BUY or SELL order to enter at the open and the number of shares per account, the evening prior to the actual trade.  There will be at least three accounts: mine, the investor from #1 above and the hedge fund.  The broker will use my provided (on website) and simple exit plan, to be sure that the loss stops and trailing stops are applied to all accounts.  They will be sure that I will always be out of the market by the end of the trading day.  These will be margin accounts so $50,000 equity would trade 4,000 shares of the Q’s (4 times equity).  For example, my account would be funded by $400,000 and 32,000 shares of the Q’s would be traded.  Please understand that $50,000 would be used at first to be sure you or any other broker can consistently do what I want."



The trader is not going to hold my hand on this. He wants to know if I can deliver. Although I am licensed and am very familiar with the industry, I have never acted as a broker. How do anyone suggest I go about this? 



Any feedback would be greatly appreciated.

Jun 5, 2008 3:45 pm

This doesn't pass the smell test to me.

Jun 5, 2008 4:03 pm

Really? Can you give specifics as to why?

Jun 5, 2008 4:11 pm
Capit0lGains:

 How do anyone suggest I go about this? 




Any feedback would be greatly appreciated.

 
Run away. 
Jun 5, 2008 8:04 pm
Capit0lGains:

Hello All,



I am a registered representative for a bank broker/dealer. I don't trade in my current position. I met a trader who is starting a hedge fund w/1MM later this year and asked if I would like to be the broker. This is the strategy:<?: prefix = o ns = "urn:schemas-microsoft-com:office:office" />



"I will enter the BUY or SELL order to enter at the open and the number of shares per account, the evening prior to the actual trade.  There will be at least three accounts: mine, the investor from #1 above and the hedge fund.  The broker will use my provided (on website) and simple exit plan, to be sure that the loss stops and trailing stops are applied to all accounts.  They will be sure that I will always be out of the market by the end of the trading day.  These will be margin accounts so $50,000 equity would trade 4,000 shares of the Q’s (4 times equity).  For example, my account would be funded by $400,000 and 32,000 shares of the Q’s would be traded.  Please understand that $50,000 would be used at first to be sure you or any other broker can consistently do what I want."



The trader is not going to hold my hand on this. He wants to know if I can deliver. Although I am licensed and am very familiar with the industry, I have never acted as a broker. How do anyone suggest I go about this? 



Any feedback would be greatly appreciated.

 
I agree with the poster that it doesn't "pass the smell test". Your request for details as to why it doesn't pass isn't necessary. Rarely, and I mean rarely does anyone have such a situation just drop into their lap. Run this by your compliance department, to be sure. And don't be disappointed if they decline the account, as they will probably be saving your b*tt.
 
In the early '90's, I used to get unsolicited calls from people with Nigerian accents wanting to open accounts for hundreds of thousands of dollars. I passed.
 
Beware of strangers bearing gifts.
Jun 6, 2008 7:13 am

What a load of rubbish. 

First of all, anyone can start a hedge fund if they pay the money to set it up. Just like anyone can start a Ponzi scheme.  Even a "trader."

Second, no legitimate hedge fund starts with a million bucks.  By law they are limited to no more than 99 investors, all of whom must be accredited investors, so the minimums per investor are typically well north of a million.  For those with any kind of track record, add at least another zero to that.  If you can't come out of the shoot with much, much more than a million you have zero business  starting a hedge fund, and more importantly no one with half a brain has any business investing with you.

Third, legitimate hedge funds do not trade through outside accounts as you have described.  They conduct trades through the fund accounts via their prime brokerage.  Investors own units or shares of the fund, not individually registered accounts.

I could go on, but what's the point?  This is as silly sounding as the Nigerian money transfer scam emails cluttering up your spam filters. 

The only thing unclear from your post is WHO is the fraud: your so-called hedge fund manager or you for making up all this rubbish. 

Jun 6, 2008 9:15 am

I agree with what you've written but just want to correct 2 points, only because people on this board may have clients they wish to place in hedge funds.  While not usual, it is possible for a hedge fund to start with $1mm during its incubation period.  Typically it's just the seed money of the manager.  But most launch with substantially more AUM.  A 3(c)(1) fund is limited to 100 investors but there is no requirement that the investor be an accredited investor or qualified purchaser.  A 3(c)(7) fund has no limit on the number of investors but they must be accredited investors or qualified purchasers.

Jun 9, 2008 8:34 am

Thank you all for the responses. After conducting additional due dilligence, I found out this guy was fined for selling unregistered securities. Oh well.