Trading with other people’s money

[nithin]

@ManoranjanS

Hello Sorabh,
Could you please guide how can an individual get RIA license?
Any link explaining it would be of great help.

I would be interested to pursue RIA. Kindly help.

Can you check this on the SEBI website. You can also look at their FAQ.

[nithin]

@SOMNATH_RANGREJ

Under AMC section of the article, Nitin said “short selling are allowed, but intraday trading isn’t. F&O can be used only to hedge.”

This isn’t contradictory, Short selling is allowed means we can take a short position in Futures not to hedge also?

ah thanks for pointing out. That was a typo, removed the short selling bit.

[nithin]

@rewaant

We don’t plan (now or future) to raise any money (100% will be our own) and it would behave like a passive business. Reading your article, I can assume this is a safe and legal way to go forward? Moreover, we’ll be adding more investment vehicles as the company grows and not just limited to trading.

Like I mentioned in the article, LLP can’t be used

Firstly, an LLP with the objective of investing or trading is not allowed, so people use an alternate objective to create the LLP. This is a clear violation of MCA (Ministry of Corporate Affairs) rules.

If you are planning this with family, setting up a partnership firm is the best way to do this. Efficient even in terms of taxation.

[nithin]

@enigma

Can an RIA please stock trades in client account after a written request from the client which specifically has stock name/date of execution etc? So the investment in made purely in a non-discretionary capacity in a buy/hold type of strategy? Recently, SEBI has allowed trade implementation by even individual RIAs as long as no compensation is received by the RIA for execution.

If you have consent from the customer you could place a trade, but this can’t be a standing instruction. You will need consent for every single trade. But the question is how will you place it? Are you an AP who has access to dealing terminal or will you login to customer account and place the trade? If you are a sub-broker you will be getting compensated for the trade.

[sorabh_dhiman]

Hello manoranjan,

Let me tell you straight process for becoming RIA

first download the pdf of nism research analyst book
This is available (2015 edition) read thoroughly it’s boring I know.

After that you can take 2-3 month subscription of some online websites like prepcafe (https://www.prepcafe.in), they provide study material with mock test also like simulator environment with MCQ test and same timing as it happens during Exam time (I am not promoting just telling what I did)

After that you can apply for real exam from NISM website by paying fees of 1500/-( crosscheck pls)

The supcription cost of preparation site is approx 500 rs.

I hope it will help
For further query connect at 8586943669

[enigma]

The idea is that an RIA will be logging into client’s brokerage account to place to trades. RIA will get a written confirmation for each trade (ticker/date of execution) from client in advance for a buy and hold strategy. Do you think this could work? Thanks a ton!

[ManoranjanS]

Thanks a lot. I have started to read . ,

[sai_charan]

So if I have a friend and both of us like to trade and also invest together, can we open a partnership company for the sole purpose of trading and investment?

[sorabh_dhiman]

Yes it’s very much possible.
Discuss with your CA & go ahead.

[ripusingla]

@nithin @Matti Thanks for the article. really informative. I was wondering what are your views on software products like tradetron and streak.ai
where do they fit in the regulatory environment. On Tradetron, essentially a user is charged a profit sharing fee by the strategy creator and the trades are placed in user’s account. Also since tradetron is charging a percentage of revenue from strategy creator apart from fixed monthly fee to user, tradetron is also getting a profit share in a way (not directly though) for automation services. Thanks

[nithin]

@sai_charan

So if I have a friend and both of us like to trade and also invest together, can we open a partnership company for the sole purpose of trading and investment?

Yep, you potentially can. Do consult your CA.

[nithin]

@ripusingla

@nithin @Matti Thanks for the article. really informative. I was wondering what are your views on software products like tradetron and streak.ai
where do they fit in the regulatory environment. On Tradetron, essentially a user is charged a profit sharing fee by the strategy creator and the trades are placed in user’s account. Also since tradetron is charging a percentage of revenue from strategy creator apart from fixed monthly fee to user, tradetron is also getting a profit share in a way (not directly though) for automation services. Thanks

Streak gives you a utility to build a strategy without knowing programming. So there is no issue with it. Also all trades are manual, just the signals are automated. No issue with that at all.

Platforms which have completely automated trading especially while collecting fees and also without any RIA/RA license is an issue.

[Mantavya_Gupta]

@nithin sir I saw Mr. Abid’s post on LinkedIn that employees in sensibull cannot trade in F & O What’s the reason for it and what exactly is this regulation

@siva @ShubhS9

[nithin]

@Mantavya_Gupta

@nithin sir I saw Mr. Abid’s post on LinkedIn that employees in sensibull cannot trade in F & O What’s the reason for it and what exactly is this regulation

@siva @ShubhS9

Sensibull is an Registered analyst (RA) with SEBI. So as someone who advises others, maybe they have taken a decision that the internal team can’t trade. Btw, even at Zerodha, the team is allowed only to invest in stocks, no F&O trading or intraday stock trading is allowed.

[aseem12321]

@nithin Thanks for this post ! Have a few questions regarding the symantics: “In the case of a Private Limited or Public Limited company, if more than 50% of revenue comes from financial income (trading), then the company is required to get registered as an NBFC”

Here, what is the definition of “50% of REVENUE”.

• In case of trading FNO, is it “Turnover” or “Net Realized Profit”
• In case of business, is it “Sales revenue of goods” or “Sales - Costs of good sold (also known as gross profit)” or “Sales - Costs of goods sold - Expenses (also knows as net profit)”

Once the definition is clear, we would be able to understand whether we fall under the 50-50 rule.

Regards
Aseem

[nithin]

@aseem12321

Here, what is the definition of “50% of REVENUE”.

• In case of trading FNO, is it “Turnover” or “Net Realized Profit”
• In case of business, is it “Sales revenue of goods” or “Sales - Costs of good sold (also known as gross profit)” or “Sales - Costs of goods sold - Expenses (also knows as net profit)”

Once the definition is clear, we would be able to understand whether we fall under the 50-50 rule.

Revenue = profits and not turnover when trading and in this context. So if your company has say Revenue of Rs 1crore and if more than 50lks or 50% come from trading profits and/or from interest income, that is financial income and will need NBFC license.

[Mantavya_Gupta]

Ok sir But many brokerages do prop trade right in F&O?

[nithin]

Yeah, brokerages can do prop trading. But usually, most brokerage firms wouldn’t let their employees trade actively.

[rahulsingh]

@nithin I have asked this earlier and you replied that no client have ever make 100 crore+ from active trading ,does that change ?

[nithin]

At Zerodha we don’t have really large customers. So no one has ever made Rs 100 crore+.