A CTA makes commodity futures trades for client accounts.
A commodity trading advisor is an individual or firm that provides trading advice and account management for clients with commodity futures trading accounts. A CTA usually has trading authority for client accounts and makes all or most of the futures trades for his clients. The bulk of a CTAs income is derived from sharing the profits earned by trading client accounts.
Work for a registered commodity futures broker in a position that requires you to pass the Series 3, National Commodity Futures Examination. Any commodity broker employee who interacts with customers must pass the Series 3 exam. You cannot take the exam without being sponsored by a futures broker as an employee. Working as a representative for a commodity futures broker will provide knowledge and skills necessary to be a successful CTA.
Develop a futures trading strategy that produces consistent, profitable results. A commodity trading advisor who cannot trade profitably for client accounts will not be in business long. Prospective clients will want to see your trading strategy track record.
File the required paperwork with the National Futures Association to become registered with the NFA as a CTA. Forms to be completed online include Form 7-R for the CTA business and a Form 8-R for each principal or associated person of the CTA (see Resources). Each individual involved must submit a fingerprint card and have passed the Series 3 or higher level futures exam. CTA filing fees total approximately $1,000 plus $85 for each individual Form 7-R at the time of publication.
Establish a relationship with one or several commodity futures brokers where your clients can establish trading accounts. Your clients will deposit money in accounts in their name providing you trading authorization as their commodity trading advisor.
Sign up clients, finding them through personal contacts or referral sources. The client accounts will be your CTA assets for trading, generating profits for your customers and a cut of those profits as your business income.
Have enough money in savings to support yourself for at least a year if you are starting a CTA without an established client base.
One path to become an independent CTA is to work for another CTA or managed futures company for several years, learning the markets and making contacts.
To be successful as a CTA, you must quickly gather assets to manage. Trading advisor compensation is usually a percentage of assets under management plus a share of the profits. A large amount of assets will give a base income, providing financial stability to a CTA business.
A report from the CFA Institute reported the average life of a managed futures company is approximately four years. A CTA business can go out of business from poor futures trading results or by not having a large enough client base.
CFA Institute: Survival of Commodity Trading Advisors — 1990-2003
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, and various other websites. Plaehn has a bachelors degree in mathematics from the U.S. Air Force Academy.
Plaehn, Tim. How to Start a Commodity Trader Advisory.
Plaehn, Tim. (n.d.). How to Start a Commodity Trader Advisory.
Plaehn, Tim. How to Start a Commodity Trader Advisory accessed April 19, 2019.
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