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.
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.
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.