Asked by Niekie on 03-07-2023 13:36:12
Question posted in the General Law category relating to KwaZulu-Natal

Good day,

I am a part time Online Forex Trader using an FSCA Regulated and South African based Forex Broker. My trading account is registered using my company credentials and I am using my business bank account to transact to and from my trading account.

Am I allowed to trade on behalf and using funds from close family members and friends (specifically: Wife, Sister-in-Law, Daughter, Son-in-Law, Stepson, Stepdaughter and one close friend). I have no intention to do this as an extended business and will not provide any financial services, nor do I have any intention to trade for any other individual.

If yes, how do I handle the payouts from my business bank account to their bank accounts and how do I report these payouts?

Thank you in advance,

Sameul Barnard

Posted by Att. Patrick on 03-07-2023 14:42:12

Hi there Sameul and thank you for your question,

I am a practicing attorney based in South Africa and I will assist you with your question. Please feel free to ask as many follow up questions in order to clarify your question. If you have a new question, you must please open a new thread.

Please keep in mind that our discussions is for general information purposes only. Our engagement on this website does not create an attorney-client relationship. 

Are you asking the question because you are worried how the broker is going to treat your trading account, and you're worried that you need to disclose this 3rd party trading to your broker, OR are you asking because you don't know how to treat your commercial relationship with your family members, like accounting to them?

Thank you very much for the reply.
It is more the legality of trading “for” other people, it will allways be only one trading account containing all the funds. The accounting to them I have already worked out.
Is it legal for me to do this and pay their proceeds from my business bank account to their bank accounts?

Posted by Att. Patrick on 03-07-2023 15:42:33

Technically, you are not a registered financial services provider, so no, what you are proposing to do would be illegal. You can't trade as a stock broker of sorts on behalf of third parties, unless you are a registered financial services provider.

Having said that, you would not go to jail if you did so. Rather, your family members wouldn't have much recourse against you for any loses that you sustain.

So, if you are trading on behalf of just your wife, then I would say go for it, you really have no risk in doing so. But, the wider you cast the net, (i.e. your brother/mother, or your first cousins, or your second cousins) the risker it becomes for you. 

In order to mitigate this risk, what you could do is to enter into a 1 page loan agreement in terms whereof your family members loan YOU money, and you then trade with "your" money, and then you agree to repay them a share of the profits. 

It kind of sounds like the same thing to you trading on their behalf, but in your example they are giving you money so that you can trade THEIR money on your platform and that the profits are already theirs.