Commodity Trading Advisors

I wrote a little bit recently on Managed Futures and there seemed to be a fair amount of interest from readers in learning a little bit more so today I’m going to introduce the concept of CTAs – Commodity Trading Advisors.

What Is A Commodity Trading Advisor?

A CTA is a US-specific registration for advisors or firms who provide advice or management on portfolios using derivative instruments (futures, forwards, options). An advisor or firm may advise or execute derivatives trading without being registered as a CTA if they deal with less than 15 clients or only very rarely use these types of securities.

CTAs generally use one of three trading styles: 1) Systematic (Blackbox), 2) Non-Systematic (Discretionary) or 3) a blend of the two.

Systematic Approach

This is the most common type of CTA program and the trading is automated to varying degrees. Technical analysis is used heavily along with other variables which serve as inputs into proprietary trading models which then provide outputs to determine trading. As such, they are often referred to as, or perceived to be, blackboxes.

Non-Systematic Approach

The non-systematic approach is also referred to as discretionary trading. For the most part, these CTAs rely on experience and personal judgment. Perhaps this should be referred to as more black art if systematic CTAs are regarded as blackbox?

The next time I write on Managed Futures, I’ll get into the main systematic CTA program: trend-following.

Preet Banerjee
Preet Banerjee an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 8 comments
  • wynona

    there are many commodity trading advisors who are not careful in giving advices or who do not perform their jobs well. they give advices which sometimes put the company or your future at stake. when investing on a good trading advisors you must choose the right ones. if you are looking for excellent financial advisors, the ones who are trusted you can visit this site: managed futures

  • Investing 101

    As Wynona pointed out, it’s important to remember that while those advisors love telling you that they’re in business to make you money, the truth is that they get paid from the commissions they earn on transactions they suggest you do. So following them blindly is not necessarily in your pest interests. Fee-only financial advisors don’t have this bias, and are often recommended over their commission-compensated peers.

  • The Commodity Code

    My approach is systematic, with a robot :)

  • The Commodity Code

    <a href=””>The Commodity Code</a>

  • The Commodity Code

    My approach is defo systematic, with a robot :)

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