I have a trading record built with my profitable ea what is next step to attract capital? Are big banks also looking to public track record? And when is it interesting for them?
Thanks!
Have I got this right? - You have a profitable EA and wish to borrow money from a bank to trade with?
This is a good post. If you don’t mind me asking, how much are you working with.
The difficult thing is getting your foot in the door, i.e. getting yourself taken seriously.
A book which will help you (even though it’s slightly out of date, now) is “The Predictors” by Thomas Bass; the entire book is about the answer to the question you’ve asked here.
Assuming that you have independently verifiable trading records covering at least several hundred trades and at least a two-year period, you’re still going to need a non-disclosure agreement, for them to look at it. Many financial institutions employ very highly paid software analysts to examine such things, and there comes a point at which you have to trust them with your software, given adequate legal protections, etc. For all of this, you need a lawyer experienced with these scenarios, and some initial funding just to cover the legal costs of approaching and negotiating with suitable parties. But if your software works, you should be able to raise this?
The amounts of money involved in your trading record are very much less important, as long as they’re real trades in a real market, and independently verifiable, and of course statistically significant, with an appropriate Sharpe Ratio and so on.
Companies like Crédit Agricole, and Crédit Suisse First Boston do lease software from its inventors, typically on a monthly payment basis plus a small profit-share. There must be others, too, but I’m now probably too out-of-touch with this world to offer any up-to-date advice about that, sorry.
The important thing is to approach these people on as close as you can get to “level terms”: it’s absolutely essential to “look the part”, and to make a plausible/credible approach that gets you taken seriously. This is the initial hurdle at which the majority of people fall.
I’d advise you not to approach them without both (a) knowing what’s in the book mentioned above, which will doubtless interest you greatly anyway, and (b) a lawyer experienced in such negotiations. Otherwise it will be very, very difficult to be taken seriously and to get as far as getting your software assessed.
Another, different option for you, if your EA’s suitable, would be to use it to earn a funded account with a “prop shop” (there are at least a couple that allow automation of this kind for people to qualify for accounts). This would be much, much quicker, easier and less expensive, and could work out very profitably for you, if the EA’s everything you hope it is (and if it isn’t, there’ll be no realistic prospect of an arrangement with a financial backer anyway.)
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Don’t mean to be nosy but how much you are working with will determine a lot about what you can do and how you would approach raising 3rd party money. I can only talk about the avenues that I have looked at so far which seem to be capital intensive. Where are you based?
If you were a UK resident seeking 3rd party money and tax free trading you might consider:
- forming a UK-based investment manager (as a limited liability partnership)
- forming a fund vehicle based in the Cayman Islands, and put in place a simple investment management agreement between your fund vehicle and the investment manager; and
- bringing your existing trading relationships over to the Cayman Islands fund vehicle
That is the legal structure you would need and you could bring it home for ÂŁ7,000. you could speak to www.walkersglobal.com to walk you through the process of the Cayman piece. But that is only the beginning of the problem because you would still need:
- An administrator to verify your track record (basically to start building track record again from scratch)
- To be FCA regulated to receive 3rd party funds
You can speak to www.apexfundservices.com about the services (administration) they provide to startup funds.
It takes 9 months or so the get the relevant license from the FCA (Not sure what your regulator will ask for) and it is expensive. Alternatively you could use the services of an incubator fund (trading under the umbrella of their FCA license) like www.linearinvestment.com. But I think they charge ÂŁ2,500 a month for their services.
So clearly if you have anything less than £1m in your trading account, that could put a strain on your trading efforts just to meet your costs. I am sure there are cheaper ways of doing it but I don’t know what they are as of now.
I do remember speaking to a company that introduced mandate driven investment from multiple sources. We did not talk about the specifics of if my trading would have to be constituted into a fund but don’t think it had to be. Although in their case they wanted 6 months track record of live trading with at least £50k account balance.
I will try and dig up their details and send it to you. If you come up with better answers don’t be shy to post them all here.
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That looks very good information from Ropunzel, just above^^^ (and I don’t doubt his information will be much more up to date than mine, too).
Thanks for your support guys.
If you have more info please send. (btw i cant open the link you send)