Trading Business: How to Raise Fund and How Much Will You Make

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If you are planning to start your own trading business, there are a few things you need to think about. These things include how much you will need and how much you will earn from it.

Read on to learn more.

How to Raise Funds

There are three ways to raise funds:

  1. Join a proprietary trading firm
  2. Raise funds from high-net-worth investors
  3. Raise funds from online investors

In this article, we will discuss these three methods.

Join a proprietary trading firm

When you work with proprietary trading firms, you work as a solo trader. You won’t get too much of a basic salary. However, they provide trading capital, and you take a share of what you make.

Some of these trading firms will accept you even if you don’t have the experience. However, if you have a good track record, you are more likely to be hired by these firms. Also, you can negotiate a better deal in terms of trading capital and profit share.

Raise funds from high-net-worth investors

Another way to raise funds is from ultra-high-net-worth investors or individuals. These people are rich and want to put their idle cash to good use.

Since they won’t trust any stranger to manage their money, you need to earn their trust. Assure them that you won’t run away with their money.

Raise funds from online investor marketplaces

You can raise funds for trading on different online platforms. You can:

  1. Raise funds from others
  2. Get allocated capital by winning contests
  3. Raise funds by selling signals

Raising capital from others

Some popular platforms, sometimes called PAMM platforms,  include Darwinex and Alpari PAMM. 

So, what is PAMM?

PAMM means Percentage Allocation Management Module. It refers to a trader managing money from other people.

So, if you are a trader using the PAMM platforms, you get a share of the profits from the clients.

Raising capital by winning contests

Some of the popular platforms to use for this method include Quantopian, Quntiacs, and Numerai. They host algorithmic trading competitions, and those who win get allocated capital.

Selling signals through online platforms

Selling trading signals, also known as copy trading, entails people copying the trades by Trader X in an automated fashion. Popular platforms used in this method are Etoro and ZuluTrade.

How Much is the Profit Share

Generally, the profit share for trading depends on your track record. Again, if you have a good track record, you get to negotiate for better terms.

Let us break down the percentage profit share based on how you raise your funds for trading.

  • Proprietary trading firm – start from 30%, but if you have an impressive track record, you can negotiate up to 80%.
  • Funds from ultra-high-net-worth people – start from 20%, but if you are a star trader, you can get up to 50%.
  • Online investor marketplaces – you can get between 10% to 20%.

How Much Capital Do You Need?

So, how much capital do you need to raise?

Well, if you want to make enough to quit your day job, then you need 100x your yearly expenses (given that your profit share is 20%).

Thus, if your expenses are $50K yearly, you need to raise $5 million in trading capital. 

  • If we assume you make 15% a year on $5 million, you’ll make $750K for your portfolio.
  • If your performance fee is 20%, you’ll take home $150K. 
  • After the $50K expense, you’ll get $100K left over to reinvest (if you want) and compound.

Frequently Asked Questions

What is the difference between active and passive portfolio management?

An actively managed portfolio is where the trader makes many active decisions and trades frequently. On the other hand, a passively managed portfolio refers to a situation where the trader makes few decisions, and trading does not happen as frequently as in the actively managed portfolio.  Beta-tracking mutual funds are an example of passive portfolios.

Can you raise money from different sources?

Yes. You can raise money from trading firms, ultra-hihg-net-worth individuals, and online investor marketplaces all at once.

Can I get a base pay while trading?

If you are a beginner, getting base pay is unlikely. But, you can negotiate a base salary if you produce a good performance later.

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