Trader looking for angel investors


A recent site visitor sent me a question via the contact form. It brings up something I’m sure quite a few others have at least thought about at times in their trading development and/or career. After all, who wouldn’t want the opportunity to trade with a larger stake?

Hi John,

I’ve been reading your blog for a while and I have a question to ask. Do you know about angel investors for traders?

I traded with my own money before (6 years ago) but lost a sizable chunk of it. I want to get back in the game and currently trade stocks and options on a demo account.

I practice good risk and money management and try to chose only trades with the highest probability of success and minimum risk. I treat my demo account with all respect as it was real money. I feel that it holds a key to my financial independence.

I intend to continue to do so until I reach a constant 1%/week average gains. (As of now, I am up 5% since inception 2.5 months ago).

Then I will feel confident enough to start trading with real money.
However, there lies a problem. My demo account is $100K and I use strategies suitable for this account size. Unfortunately, I don’t have that much real money to trade (only trade what you can afford to lose, right?). The best number I can come up with is $10K. I am afraid that with this size of account I am doomed to fail.

So, I plan to present my entire track record (including some really dumb trades that I did in the beginning) to someone who would be willing to “buy” equity in me.

They would open a real account and let me trade it for, say, a year. They would keep 90% of profits if I am profitable (I hope I will be) but assume all losses. If I end up losing, they would take the account away. If I keep winning they may add to it and so on.

Once my profit share reaches $100K I plan to trade on my own. That would be money I could afford to lose.

Do you know if these people exist at all and if so, how do I get in touch with them?
I need someone for whom $100K would feel like a small change.

Thanks

Nikolay

My first question for Nikolay would be why he thinks that the strategy he’s using in demo trading wouldn’t work with a $10,000 account? I can guess at potential answers, but I would also want to take a look at things to see if there could be ways to adjust the strategy to employ less capital.

As for whether there are these “angel investors” out there, I’m sure there are some. I couldn’t say how to find them, though. Also, a 2.5 month positive track record against a 6 year negative one isn’t likely to inspire much in the way of confidence in a prospective investor.

An option to consider may be a prop trading operation. This is not a subject I am well educated on, but Brett Steenbarger posted on the subject fairly regularly, so you can search through his blog (he also talks about it in the Trading FAQ).

If any reader has a suggestion for Nikolay, definitely leave a comment below.


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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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  • Nikolay

    John,

    Let me clarify some points here.

    1. 6 years refers to the time in the past not a time frame. The actual time frame was about 2 year. I had a lot less knowledge back then and I was trying to run before I could crawl. Now I am crawling first and only thinking about walking :-)

    2. I am not saying that 2.5 months is enough. That’s why I plan to continue to paper-trade for another 6-9 months until I feel comfortable.

    3. As for strategies, I take small (relative to 100K) positions that consist of 200-500 shares of stock and/or 4-10 option contracts or spreads. That way commissions make very little difference and I can diversify

    Thanks, Nikolay

    • http://www.theessentialsoftrading.com John Forman

      Thanks for the clarification. My question for you is whether you’ve considered employing an option-only strategy in place of the stock+option positions. That would be a way you could reduce your capital requirements.

      • Nikolay

        When I want to enter a stock position, I place a trailing stop in the direction of the current trend.

        Once the order is filled, I place a protective stop at my predefined level and wait till either stop is hit or the position has enough profit to justify hedging. In the latter case I use either collar or sling-shot option spread to protect some profits and leave room for further growth.

        This technique could be used with DITM options but they are a lot less liquid and the spreads are wider (e.g. 20c vs 1c for a stock). Add commission and the disadvantage becomes even bigger.

        One option-only strategy I currently use is to sell OTM credit spreads on ETFs (SPY, QQQ, etc.). This one may work well with a smaller account. However, commissions relative to 1-contract spread are a lot higher than relative to 10-contract spread. This means I will have to choose spreads closer to the current price, thus taking more risk. I need to do some experiments there.

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  • Brett Richwine

    Nikolay,
    my suggstion would be to trade a small options position with real money, and prove out your track record. You can not get anyone to invest with a demo account. Also, forget about the past, only talk about your current strategy and current track record, as i am assuming that they are different strategies, and you are not trying to repeat the same strategy and get a different outcome? ie. if you hedge your new strategy different than the old one it is considered a totally seperate strateegy.
    Once you have a proven track record, there are several prop shops in Chicago and a few in New York that would give you a small amount (100-500K) to trade with. They might require you to put up your 10K as first loss, but this would allow you to trade with the size that you desire. Also, they would give you anywhere from 30-50% on your profit!!! (you should never give away 90% in MHO!!!)

    Brett
    ps. i traded options for 12 yrs, and now am starting up my own prop shop / fund, and also recruited for the top prop shops in the world for a number of years.

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