Paper trading companies conducting evaluation where upon passing the evaluation to issue loans as funding

Hey @nithin
Just wanted to know an approach to help traders get funded, as i am creating a paper trading platform for traders to evaluate themselves by achieving a specified target and they lose the evaluation fee upon losing a specified drawdown, while we charge them only to evaluate as a tutor company and provide knowledgeful insights, and register myself as a AP where we provide funds in form of loans at 0% interest for skilled traders where as a company we bare a specified drawdown set for the traders as loss upon completion of evaluation, POA signed by both mutual parties and money sent directly to broker account with the withdrawal option held by an AP where the broker and i(AP) have mutual understanding about the same, i connect them with my broker to earn brokerage as well as demat account opening fees, where as a sub broker i will not be charging a penny on the loan nor profit sharing from the trader because the regulation does not allow as i will be needed to take RIA registration if charge them,

my question is will i still be in the grey area while executing this business

do i need any kind of registration to be done apart from an AP because i am not provide any direct buy/sell to traders nor am i trading on their behalf, we are just providing a knowledgeful journal about their trading history

do i need to register as a NBFC if i do provide loan in the companies name

can we have an option for an AP where he can convince the broker to set a certain amount as margin call or have his client to stop trading after a certain percentage of loss reached in their account with broker

Dark grey.

You can’t get into this like that POA or block people from withdrawing money to their accounts. Lending money as an AP is also not allowed by SEBI.

You will need NBFC to lend, but NBFC can’t lend money for F&O, intraday trading, etc.

A customer could request the broker, but it is hard for a broker today to customize this. The risk management rules are set at the overall level, so will be hard to customize unless it is a very small broker.

Maybe you can check this thread.

Thank you so much for your knowledgeable insights it truly feels like SEBI has a strict and thin line to protect its investors, and its there for a reason, flexibility in Indian stock markets are really hard, would have to find a legal and effective way to help skillful traders with kick starting their trading journey with access to capital apart from joining a prop firm or PMS which is again a tedious process for application in India,

My last question was, is there any other way where traders can access capital apart from personal loans or any credit related facility, as it brings a psychological effect on traders to pay out the loan as well as make a profit for living, which can make them to take wrong decisions in the process, because i believe Retail traders with good intent, profitability and who run its as business deserve a good investor who could back them up in a long run for mutual benefit.

Thanks again @nithin that was a quickest response from a CEO that i have ever received, which truly shows your dedication towards what you do.

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Folks with capital can hire retail traders to work for them. This is really the only way someone can access higher capital, apart from starting a cat 3 AIF (hedge fund) which I have mentioned in the post shared earlier.

I wanna go all in to solve this issue, so here’s a point of view or set of questions to conclude if this is feasible.

  1. @nithin (please do not worry we are not going to act based on your words)as you said “Folks with capital can hire”, can i just be a evaluation based paper trading company that connects traders to individual investors(aggregation company) upon passing the evaluation and charge 0rs from the profits they make but service for the evaluation as a tuition fee and a fixed service charge from the investor.
  2. as i read the HBJ capital investors case, formed an LLP and also charged money from the clients which will lead them to register as a cat3 AIF, so would our company start as a partnership company that does not directly deals with the traders instead just acts as an aggregation company to serve traders upon evaluation or which type of company formation would you suggest us.
  3. There is a bigger problem that i am trying to solve for n number of investors in my circle who do have interest investing in the CAT 3 AIF but the entry barrier itself is at least 1cr and The minimum size to start a fund is Rs 20 crores, where i am trying to make a way to investors who are okay to invest 50lakhs at a drawdown of 8-10% trading their individual demats and expect a return that of a highly skilled trader gives in an AIF. so this is a win win situations for both the efficient traders as well as the large number of investors. let me know if this feasible.

Have you checked out They had built a platform where traders could plugin their trading accounts, and the platform created analytics on the account that investment managers could use to hire traders. The platform charged a fixed fee to the investment manager. Think of it almost like how a recruiting firm would work.

You are allowed to charge a fee to train people. You can charge HR consultancy fees to any investor or investment manager who hires a trader from whom you have trained. I don’t see any grey areas unless you are misselling.

I think, you have to think of yourself as a recruitment firm. Like how there are recruitment firms that help companies hire.

To be brutally honest, I think it is a bad business idea. Finding a good professional trader is extremely hard and the good ones with long enough track records usually already would have found ways to scale the trading capital.

@nithin Just looping up the question, after research we found according to fund seeder they extract data from brokers and provide an overview for the investors to judge traders based on their performance and hire them, is this allowed according to sebi?

so my question is, if we become a recruitment company just like fund seeder and share no profits directly from traders nor from investors instead charge the fees as you mentioned would that be okay from SEBI perspective.

lets say an investor is ready to hire a trader based on their performance from us, is there any legal procedure for the investors after hiring the traders to trade. meaning- will he be trading in the investors account, or will be have to move physically to the investors place, or would it be fine if the investors monitors and gives his account credentials to the traders on daily basis from market open to closing, i just wanted to know what’s the best possible way for the investors to make their traders trade after hiring.

even though it being a bad idea i would want to give the investors an opportunity to hire the highly skilled traders only after evaluating the traders performance not for the short term instead they can track the particular traders performance for the long term and build relationship with them in the long run to have scalability, which makes the trader to learn a lot of things in this journey, so my last question is, if not POA what are the possible way to get investors to legally operate in the recruitment agency after hiring the traders.

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I don’t think there is an issue with this.

I think so. I can’t think of any law stopping this. If you are just charging a one-time HR consultancy fee for placing a candidate.

This is tricky. I guess the only way this can happen is if the investor shares login credentials. The other way is for the investor to become a proprietary broker and then hire the traders on payroll.

Hmm… why would investors legally operate? They would just want to see the reports of traders right?


No, apart from taking Recruitment fee from both the parties we will not be letting either of them to operate within the company, i meant to operate legally in the process after hiring and recruitment, Which i Thank you for giving me the answer, i guess investors having to monitor while sharing the login credentials do makes them have the skin the game, which is good as they can have an authority to hold themselves accountable.

we are coming up with a well driven idea(with consent of legal advisor), calculating all the required steps to be taken into consideration, i’m confident enough that this will come into existence in mere future and i would be a part of it, hoping to having an opportunity to collaborate with Zerodha if our idea takes off.

Thank you so much Nithin for sharing your expertise knowledge with me, See you soon.