Laws Regarding Trading Other People's Money

Beginner Questions
1

Hypothetical Scenario, followed by questions.

I persuade someone, Alfred, to put $100,000 into my hand. In return, I promise to use that money trading currencies (i.e. forex). I promise Alfred 70% of the profits from the trading I do with his money. I tell Alfred that if trades with his money lose, the losses come out of his money and that is not my problem. Alfred is taking this risk,because I have persuaded him he can count on me to make profits on trades and to not steal his money. I tell Alfred he can ask for his money back at anytime. I explain that when he asks for his money, I won’t do any more trades, and he will receive back his $100,000 plus or minus the gains and losses on the trades. I explain the time between his request for withdrawal and when he gets the money is however long it takes me to get the money out of my trading account.

So far, all that has happened is Alfred and I have had a conversation, and he just put the money into my hand.
QUESTION: Have I broken any laws?

New Scenario
I deposit the money into my trading account, which contains money I have received from other people making the same deal as I made with Alfred.
QUESTION: Have I broken any laws?

New Scenario
I make trades, and in spite of my best efforts to make profitable trades, I lose all of Alfred’s money plus all the money I got from everyone else who made the same deal
QUESTION: Have I broken any laws?

New Scenario
Alfred sues me for losing his money.
QUESTION: Does he have a legitimate case against me?

2

Depends on the country you are in. Laws covering this sort of business vary between countries and sometimes between states within the same country.

In some countries you might both be braking the law - you for trading with someone else’s money without a licence and Alfred for lending out money without a licence.

In some cases the laws are relaxed if you and Alfred are related.

3

Whether Alfred can sue you also depends on the terms of the contract, and you might be in the clear if you can show he knew the risks and accepted them.

However, expect to lose the case if you induced him to sign a contract under which you would trade his money if that was illegal in your country anyway.

4

Hi,
Interesting post. As others have alluded to - “it depends”. In many countries today (I am a UK resident), that depends on the laws of the country. One thing for sure is that you do need to keep up to date because the Nanny States that have become the norm have used events like “terrorism” to find a new excuse to invade our privacy and usurp previous laws that were designed to be our inalienable rights, but strangely have become more like George Orwell’s 1984. So for the purpose of this exercise, please advise the mechanism by which Alfred “just put the money into your hand”. Then we can continue.