Where/how can I find a trader in financial markets with whom to invest?
July 30, 2015 10:31 AM   Subscribe

I've recently been looking into trading financial markets (e.g. forex, shares, etc.) However, my conclusion is that it takes a very long time and a lot of effort to do it right. I could put this effort if need be, but would prefer to focus on my career at this point. I had the thought that it would be nice to find someone who has achieved a degree of success in trading to manage an account for me (i.e. division of labor). But where would one find such a person?

I know that there are fairly successful traders out there, and I would hope they would want to manage money for a fee. However, actually finding such a trader turns out to be a significantly difficult task. Almost all the investment options I’ve seen are long-only, buy and hold-type strategies with occasional tweaking, usually with stocks. However, I'd like to use a more niche/trading-like strategy. I would probably prefer an index fund if I wanted to go long-only stocks fully invested all the time. For this part of my portfolio, I'd like to go for something that's more absolute return. I wouldn't mind things like stop losses or going to cash if no trading opportunities are available.

Although I've got a fairly significant investment base, unfortunately I’m not a sophisticated investor yet.

Are there other options in this case besides taking a passive investing approach or just trading yourself?
posted by strekker to Work & Money (10 answers total)
What you're asking for is generally called a hedge fund, and usually isn't available to you as an individual investor unless you have a few million to plow in. There may be smaller scale alternatives but the fees are gonna be so huge that they'll destroy pretty much any profit you actually stand to make.
posted by Itaxpica at 10:41 AM on July 30, 2015 [2 favorites]

Why not just buy into a mutual fund? as itaxpica said, unless you have millions (i.e. "accredited investor") you ain't gonna get into the hedge fund action.
posted by kschang at 10:46 AM on July 30, 2015 [2 favorites]

In terms of managed investments, you'd be looking at a hedge fund or similar "alternative investment." These are only available (on the retail rather than institutional side) to accredited investors who have a significant amount to plow into them.

I could put this effort if need be

Generaly caveat here: personally trading forex contains a very, very high degree of risk. This is owing to the amount of leverage that's used in forex trading.

Moreover, forex markets are "fast" - they move very quickly, and they're also around-the-clock. Coupled with leverage, this means gains and losses are amplified over a very short time period and that market never sleeps, even if you need to. People get blown up all the time by this.
posted by mandolin conspiracy at 10:50 AM on July 30, 2015 [1 favorite]

Best answer: I had the thought that it would be nice to find someone who has achieved a degree of success in trading to manage an account for me (i.e. division of labor). But where would one find such a person?

People who have achieved success in trading fall into 2 camps- (a) those who do it with their own money and other people's money for a share of the profits, or (b) people who do it for institutions and get paid a regular salary or some small commission.

All the people in camp (a) are in NYC or City of London hedge funds, they're ungodly rich, and they don't want to take your money and invest it, because they can get cheaper money elsewhere.

The people in camp (b) work at a place like Charles Schwab, and you can go open an account at a brokerage firm like that and let them invest your money. You don't get crazy good returns there like you would in hedge-fund-land, and in the long term your rate of return ends up looking like the rate of return on the market, generally. Except you're paying some percentage in commission to the broker, so your return is a little less than market average.

Tl;dr you're looking for a unicorn. If you do happen to find a Warren Buffet that'll take your money and invest it for you, let us all know. I'd like to find that unicorn too.
posted by DGStieber at 10:54 AM on July 30, 2015 [2 favorites]

There's one more option that people haven't raised yet - there are ETFs designed to replicate hedge fund strategies. I don't know how successful or how expensive those are, but it would be a way to get access to the types of trading strategies you want to use as a non-accredited investor.

In any case, you'll probably make more of a difference in your returns by figuring out how to limit your investment expenses instead of chasing novel/high-risk investment strategies.
posted by snaw at 11:12 AM on July 30, 2015

Best answer: What you're asking for is almost an exact description of a hedge fund. Generally they are operated by traders who come out of the big I-banks and set up shop, managing funds from wealthy individuals or institutions according to a particular strategy.

You typically need to be an accredited investor to work with them (not all, but most; it exempts them from a lot of SEC regulation), which means you have to have at least a million bucks hanging around (including all other investments but not including your house), or make $200+k per year. If that's you, then you can shop around for one; there are lots. If that's not you... well, consider yourself to have dodged a bullet, because hedge funds just aren't very good. Sure, some hedge funds do better than the market some of the time, but there are a lot of them, and it's hard to predict which ones. There's as much due diligence required in choosing a hedge fund as there is in picking a security or position to invest in (more, I'd argue, because you're probably putting more financial apples in the hedge fund manager's basket than you'd put in any one security). Even funds-of-funds built around multiple, diversified hedge funds struggle to match the S&P over long periods.

So I'd really think about why you're doing this. If you have enough money, and there is a very particular strategy that you want to pursue, you can probably find a fund manager out there who also goes for that strategy and will invest your capital for you. But in doing so you're going to pay staggeringly high fees compared to passive investing strategies, so you'd better be damn sure that your strategy is really that good.

I'm not 100% against active investing. If you wanted to manage your own investments, that's one thing -- you're likely to lose money, statistically, versus a passive strategy, but there's at least something to be said for the hard-knocks education you'll receive along the way. But paying someone else 1% or 2% per year, win or lose, plus 20% of any gains (in most cases), in order to do it for you, very likely poorly and without even the benefit of learning how to do it yourself, seems... crazypants. Do yourself a favor and think really hard about this.

Also, forex is a place where small investors go to lose money. Unless you really know what you are doing, and are using it to hedge currency risk somehow, just stay away. I've seen people ruined as thoroughly by messing around in forex speculation as by betting on the ponies. Anyone who says they have a "system" for beating the game there ought to be treated with just as much skepticism as the dudes selling tip sheets for $5 outside the gate at Saratoga or Pimlico.
posted by Kadin2048 at 11:36 AM on July 30, 2015 [9 favorites]

Attempting to time the market is a fantastic way to lose money unless you have the time to watch things like a hawk every day, and build near a major exchange where you can fight the millisecond advantages that the large brokerage firms have.

You might have more satisfaction out of joining a small stock or investment club. (I have been the recording partner of my club for years now.) These groups typically meet monthly, pool money together, do research on stocks, then buy/sell based on votes. Better Investing from NAIC would be a good place to start. And if the club doesn't buy it, you can always buy it for your own portfolio.
posted by fifteen schnitzengruben is my limit at 12:04 PM on July 30, 2015

As noted, the bloom is off the rose in hedge fund land. There are now too many players, and the best tricks are known to all.

Academic research suggests that a broad market find with very low fees is the way to go. However, if you find you want to make a particular sort of play, you can probably find a fund that approximates what you want.
posted by SemiSalt at 2:08 PM on July 30, 2015

Best answer: Hi, I'm a trader at a hedge fund, but I used to trade for smaller firms. The relationship you're describing actually does exist outside of the hedge fund structure, and used to be fairly common. An individual or group of people would pool some money and give it to a trader or group of traders, often people who worked on the floor of an exchange. The backers would typically get 55% of the profits (if I remember correctly, but that was always negotiable.) Usually you'd need to invest at least six figures to realistically make the investment worthwhile. So no, you don't need to be an accredited investor to do this.

However, that doesn't mean it's a good investment - far from it. I knew plenty of people involved in this sort of deal, both as backers and as traders. Rarely did it turn out well for both people involved. Inevitably, the trader is incentivized to make big, risky bets that can pay off huge, but will bankrupt the backer if they go wrong. Which happens with alarming frequency. And if somehow you end up backing a trader who's actually good at making money, they're going to demand a renegotiation of your deal pretty quick, since they'll easily find someone who will offer them better terms. Or, if they're really good, they'll just cut you out entirely and use their own money.

Oh, yeah, and don't even THINK about trying to do this in the forex market. Forex is as shady is it gets when it comes down to dealing with non-professionals. Seriously, the scams I've heard about in forex are just outright thievery, and you have basically no protection and now way to know what's happening until it's too late.

Seriously folks, making money in the capital markets is HARD. As noted above, even hedge funds are having a pretty tough time of it these days, (although that's for a number of reasons, some of which are more complicated than others, and I'm not going to derail this any further. You can MeMail me for more if you want.) There are a lot of smart people working on this from a lot of different angles, and the inefficiencies have been squeezed out a long time ago.
posted by Guernsey Halleck at 6:37 PM on July 30, 2015 [3 favorites]

Get a couple of Vanguard ETF's and call it a day.
posted by Mac-Expert at 8:12 AM on July 31, 2015 [3 favorites]

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