19 Aug

Commodity Trading Advisor CTA Definition Forexpedia by BabyPips com

commodities trading advisor

Managed futures strategies provide investors with a dynamic exposure to commodities. Among other ways of investing in them, commodity trading advisors (CTAs) have become synonymous with this asset class, as they provide professional money management services using derivatives markets either in a pooled or individual setting. Most managed futures strategies display trend-following and momentum-type systematic trading features, which result in adopting a long-short portfolio approach. This chapter explains the characteristics and the growth of this commodity investing industry and provides an extensive literature review. Much of the literature finds that managed futures investing through CTAs provides excellent diversification benefits and performs well, especially in crisis times. Conversely, the non-uniformity of the databases and indices used in these studies lead to several biases.

Some recent studies that directly address these shortcomings question the performance persistence of CTAs after fees. (ii) Calculation of aggregate uncollateralized outward exposure. In calculating this amount the person shall, with respect to each of its swap counterparties in a given major swap category, determine the dollar value of the aggregate current exposure arising from each of its swap positions with negative value (subject to the netting provisions described below) in that major category by marking-to-market using industry standard practices; and deduct from that dollar amount the aggregate value of the collateral the person has posted with respect to the swap positions. The aggregate uncollateralized outward exposure shall be the sum of those uncollateralized amounts across all of the person’s swap counterparties in the applicable major category. (3) If the minimum transfer amount under the agreement is in excess of $1 million, the position still will be considered to be subject to daily mark-to-market margining for purposes of calculating potential outward exposure, but the entirety of the minimum transfer amount shall be added to the person’s aggregate uncollateralized outward exposure for purposes of paragraph (1)(i)(B), (ii)(B), (iii)(B) or (iv)(B) of this definition, as applicable. A commodity trading advisor (CTA) is an individual or firm that provides individualized advice regarding the buying and selling of futures contracts, options on futures, or certain foreign exchange contracts.

Learn about CTA Member Requirements

A CTA acts much like a financial advisor, except that the CTA designation is specific to providing advice related to commodities trading. We help investors navigate managed futures programs and diversify their portfolios. The major difference in distinguishing among emerging and established CTAs focuses on how they generate returns, as emerging CTAs can often outperform established managers. The first is that emerging CTAs are often smaller and more nimble, and are able to make transactions in certain markets that would be impossible for larger, more established CTAs. The second reason is that emerging CTAs are often eager (and more aggressive) to produce favorable return numbers that will allow them to pop on the radar screen of investors.

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A CTA trades futures and currencies whereas a hedge fund can trade a greater range of securities. CTA funds use a variety of trading strategies to meet their investment objectives, including systematic trading and trend following. Generally, CTA registration is required for both principals of a firm, as well as all employees dealing with taking orders from, or giving advice to, the public. Commodity trading advisors require a Commodity Trading Advisor (CTA) registration, as mandated by the National Futures Association, the self-regulatory organization for the industry. Another differentiating factor between Commodity Trading Advisors is whether they are emerging or established.

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(iii) The commodity pool is formed and operated by a registered commodity pool operator or by a commodity pool operator who is exempt from registration as such pursuant to § 4.13(a)(3) of this chapter. The derivatives in these funds are collectively known as managed futures. They do not always have commodities as their underlying; some CTA funds invest in contracts tied to equities, currencies, indexes and interest rates.

  • Measures of daily average aggregate uncollateralized outward exposure and daily average aggregate potential outward exposure shall equal the arithmetic mean of the applicable measure of exposure at the close of each business day, beginning the first business day of each calendar quarter and continuing through the last business day of that quarter.
  • Indirect advice includes  giving advice through written publications or other media.
  • If the Commission grants such limited designation, such limited designation major swap participant shall be deemed to be a major swap participant with respect to each swap it enters into in the swap category or categories for which it is so designated, regardless of the person’s activities in connection with such category or categories of swaps.
  • This term means a contract market (as defined in § 1.3(h)), a swap execution facility (as defined in § 1.3(rrrr)), or a registered futures association under section 17 of the Act.

(vi) Notwithstanding the foregoing, no agreement, contract, or transaction structured as a security (including a security-based swap) under the securities laws (as defined in section 3(a)(47) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(47))) shall be deemed a swap pursuant to this paragraph (6) or shall be considered for purposes of paragraph (6)(v) of this definition. (ii) An interest rate swap or currency swap, including but not limited to a transaction identified in paragraph (3)(v) of this definition, that is willfully structured as a foreign exchange forward or foreign exchange swap to evade any provision of Subtitle A shall be deemed a swap for purposes of Subtitle A and the rules, regulations, and orders of the Commission promulgated thereunder. (ii) The terms swap as used in section 1a(47) of the Commodity Exchange Act and security-based swap as used in section 1a(42) of the Commodity Exchange Act do not include an agreement, contract, or transaction that was entered into on or before the effective date of paragraph (4) of this definition, commodities trading advisor and that, at such time that it was entered into, was provided in accordance with the conditions set forth in paragraph (4)(i)(B) of this definition. (1) A swap shall be considered to be subject to daily mark-to-market margining if, and for so long as, the counterparties follow the daily practice of exchanging collateral to reflect changes in the current exposure arising from the swap (after taking into account any other financial positions addressed by a netting agreement between the counterparties). This term means a person, other than an eligible contract participant as defined in section 1a(18) of the Act, acting on its own behalf and trading in any account, agreement, contract or transaction described in section 2(c)(2)(B) or 2(c)(2)(C) of the Act. A person shall not be deemed to be a “major swap participant,” regardless of whether the criteria in paragraph (1) of this definition otherwise would cause the person to be a major swap participant, provided the person meets the conditions set forth in paragraphs (6)(i), (ii) or (iii) of this definition.

Commodity Trading Advisors and Managed Futures

This term means the month of delivery specified in a contract of sale of any commodity for future delivery. These terms mean a board of trade designated by the Commission as a contract market under the Act and in accordance with the provisions of part 38 of this chapter. This term means any day other than a Sunday or holiday. In all notices required by the Act or by the rules and regulations in this chapter to be given in terms of business days the rule for computing time shall be to exclude the day on which notice is given and include the day on which shall take place the act of which notice is given.

To use this feature you will need an individual account. If you have traded for yourself, you understand that there are a variety of trading methodologies used to identify trading opportunities and implement risk management strategies. After years of trading and testing methodologies, CTAs maintain a disciplined trading niche through either a systematic or discretionary approach. Some societies use Oxford Academic personal accounts to provide access to their members. A personal account can be used to get email alerts, save searches, purchase content, and activate subscriptions.

Commodity trading adviser (CTA)

This term means an organized exchange or other trading facility. (4) Commodity-based indexes based wholly or principally on underlying agricultural commodities. We introduce people to the world of trading currencies, both fiat and crypto, through our non-drowsy educational content and tools.

Fund utilizing a short-term holding period strategy will hold trades for a period of seconds to three months before offsetting. On the other hand, CTAs using an intermediate-term or long-term strategy will hold trades for a period of three months to a year or for longer than one year, respectively. The specific holding period, or time frame that a CTA strategy employs plays a direct role in overall returns. Traditionally, CTAs have used a combination of technical and fundamental analysis to identify trading opportunities and implement their risk management strategies.

Who must register as a commodity trading advisor?

If a firm or individual wants to provide advice on commodities trading, they are usually required to register as a CTA by the National Futures Association (NFA), although there are some exceptions.

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