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My cousin [we'll call him Chuck] has gotten involved with an investment "tutor" [we'll call him Tim] that has "hired" Chuck to make investments for Tim. From what I understand, Tim allows Chuck to invest Tim's money in what amounts to day-trading. Chuck currently has zero exposure of his own money in the market, and is making trades with Tim's money. Tim pays Chuck 30% of the profits on investments (I don't know if this is daily, monthly, yearly, or upon sale of an asset, but only that my cousin said he makes 30% of the profit).

Tim emails Chuck stock picks, which Chuck acts on e.g. Tim says "Buy XYZ", Chuck buys XYZ. Tim says "Sell XYZ", Chuck sells. Chuck is also free to make other transactions as he sees fit.

Chuck is a university student in the United States. He has said there are a group of others working for Tim, doing the same thing. Independently, this is the second time I've heard about a situation like this, where the other "trainee" has recently completed high school in the United States.

I do not understand how this could possibly work. I would not put my money on the line for some kid who just graduated high school. This can't be for real. My mind screams SCAM, but I can't for the life of me figure out how Tim will cash in on Chuck and his friends.

  • Does Tim want to lose money on particular transactions?
  • Is he trying to make it look like there is a large groundswell of support (or lack thereof) for a particular stock?
  • Why can't he just have bots do this (bots that don't take 30% of the profit?!!?!?).
  • Could it be a long con where my Chuck eventually is convinced to put his own money in and loses it?
  • Did Chuck (and this other guy I heard of) just find a very wealthy benefactor that is trying to help them learn about markets? (Although this is what I'm hoping for, it doesn't seem very likely.)

What is going on here?


I've learned a little more from my cousin. Chuck is not exposed to any risk financially and nothing is in his name. The company opened an account and gave him a login to trade with. He also does not trade stocks. It's only Forex and futures. Chuck has met the founders in real life, they have an actual office location, he had to go through 12 intensive weeks of training before being allowed to trade, and can direct his profit into his personal bank account at any time. The other one (the high school graduate) seems far more shady. So it seems we might be dealing with two different classes of things.

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    "Is he trying to make it look like there is a large groundswell of support ... for a particular stock?" That's what it looks like to me. – RonJohn Dec 17 '17 at 0:05
  • What stocks are Tim having Chuck buy? If they're penny stocks, then definitely he's faking groundswell. – RonJohn Dec 17 '17 at 0:06
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    Is Tim a person you have actually physically met? Or is he a faceless voice on the Internet? – Harper Dec 17 '17 at 3:19
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    If it's not penny stocks, consider that this might be trying to get away with insider trading. Maybe this guy works at a publicly traded company and is basing orders on material nonpublic info. If he has a thousand strangers buying a hundred bucks each, he could seriously cash in. Ask Chuck whether these picks outperform the market significantly. – Patrick87 Dec 17 '17 at 14:03
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    In addition to the handing out of free money to strangers seeming odd, there's also the fact that Tim appears to be targeting younger people (Chuck is in uni, the other just out of high school) who probably don't know much about the stock market. Even if Tim isn't planning to steal anything from Chuck & friends directly, he could be setting them up to take the fall when these (illegal) trades are found out by the authorities. – Steve-O Dec 18 '17 at 20:51
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Proprietary trading firms (prop shops) make this arrangement routinely. Often times there are some form of pay-to-play such as renting a desk or a seat, or getting 20 times the amount you paid in the education.

It isn't impossible that there isn't a fee at all.

Anyone can make limited power of attorney on their brokerage accounts and have a subtrader fill in.

If they are just trading forex the only potential scam is the potential waste of time. Not sure what the pedantic threshold is but this arrangement doesn't make it a scam.

The reason people would use random nobodies is because they might have an original idea or a profitable view of the market. Seasoned traders know how to trade last season's markets. They have overfitted their strategies with a myriad of exceptions because of that one time their strategy failed, and that other time, and that other time. Their charts look like trash a 3-year old scribbled together and they won't necessarily look at basic things.

They did offer your friend some education it seems, so he has the basics, the rest is gut.

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    Indeed, Chuck said that he has temporarily paused his trading with them, as the fees for their indicator stream are fairly high and he's focusing on other things in life at the moment. So that seems like how they make money, is the pay to play. – kmort Dec 19 '17 at 0:51
  • @kmort good, you should be wary of consensus on this site, without licenses and background you cant trust people's understanding of the financial sector. Often times the strangest sounding answer is the least fictional one. – CQM Dec 19 '17 at 16:52
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How does he receive the initial money?

  • If it is cash, it could be simple money laundry.
  • if it is electronic transfer, it could be revoked later, after he already returned the wins. He would then end having paid a stranger his money, with nothing ever received.
  • it could be that he is getting hooked to finally invest his own money too in some penny stock, as it looks like magic winning tips, and then the stranger cashes in (by being the other end of a larger trade)
  • he might end up owing taxes on the gains
  • it could be a setup for a future scam; everything will work out nicely, building trust, until the final heist, when he receives an urgent wire transfer for an invest (which turns out to be fake)

Nobody gains anything from handing out free money, so it is always a scam.

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    The tax consequences could be huge in this scenario as is the chance that this is a long scam and the guy is building you cousin up to make bigger and bigger trades and will eventually send a big uncovered check. – ShadoCat Dec 21 '17 at 18:36
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Could be raising a particular stock.

Could also be the margin account trading, if the trade goes south, he can simply walk away leaving the victim to fill margin call.

He could also be an entity in past punished and restricted from trading in stock market and is looking to circumvent it.

  • I don't understand the margin account trading sentence. Can you please expound? – kmort Dec 17 '17 at 17:19
  • @kmort I think he's assuming the margin account is in the younger person's name that's making the investments on the other person's behalf - If the investor were to take a significant loss, a 'margin call' would be required of the investor to increase the value of the account so that it's not extended farther than margin / credit regulations allow. That obligation may be under the other person, not the investor's, name. Therefore if the investor loses a significant amount of money, the loss is on the person helping him, though it's the investors money initially. – schizoid04 Dec 19 '17 at 4:09
  • Minimizing margin risk on Tim's part may be the biggest thing mentioned so far. – ShadoCat Dec 21 '17 at 18:37

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