Power of attorney

A legal instrument, executed by the account holder, naming who may act and over what. In a trading context it is the mechanism behind any arrangement where somebody other than the holder sends instructions, and its scope is exactly what the document says: an authority to place orders is not an authority to move money, and the two are separate permissions that are separately granted and separately revoked.

Authorities divide into two kinds and the distinction has real content. A limited authority permits specified actions on instruction; a discretionary authority permits the holder of it to decide. Almost every arrangement described as managed is discretionary, because the entire proposition is that the account holder does not have to decide anything, and that proposition is only deliverable by handing over the deciding.

Whether the third party may lawfully accept the authority is a separate question from whether the document is valid, and it is the question that matters. Managing money on another person's behalf is an activity requiring authorisation in most regimes, so a valid instrument granted to an unlicensed party creates a relationship carrying none of the protections a regulated one carries. The account holder remains the counterparty to every position opened under it.