I am starting a CTA program and found your site to be very detailed. However, your CTA page is rather short.
Which one of your FCMs would be the best for a beginner CTA? In the beginning stages and I need to be very cost conscious so that a good support desk would be essential. If there are things that most new CTAs overlook, please let me know. Managing other people’s capital is a new venture for me. I have traded a single trading strategy since 2007.
So far the advice I got from some CTA services sent me in different directions and made my decision much harder, so if you could help me with the specifics, it would be nice.
Clearing is a relationship based business, so there is no “best.” We could service you through any of the FCMs depending on the requirements of your futures trading. An essential factor would be the futures trading software or platform you wish to use in your execution.
We respect the fact that you wish to save on costs, and that is our goal for your program as well. However, you also need to consider what is best for your customers. For example, some of the larger and more capitalized FCMs may have a bigger network of Give-up agreements.
Lastly, since you mentioned that you use a single strategy, please consider whether your approach is scalable across potentially many customer or contracts.
Yes, of course. When a CTA (Commodity Trading Advisor) trades, they choose many times to have one clearing firm for execution. However, the customers may have their accounts in different FCMs, so the executing FCM sends the positions to the other FCM where the customer(S) chose to place his account. The different FCMs have a Give Up Agreement between them to accommodate such futures transactions. We wrote about it here as well:
Yes, there is a fee associated it with it. It would typically depend on the FCM of choice and the volume that you do.
As for scalability; You can take a lot of steps before you bring new customers on board. First, you can take a look at the contract(S) you trade and see how liquid they are. Second, even if the contract is highly liquid, then you should consider whether the frequency of your trading could accommodate many customers. We would say that scalability is a factor many CTAs overlook when they form their CTA plans.
Scalability in our opinion can encompass variables such as having the ability to get fills for your limit orders. Slippage is a big factor when you have to exit at the market, so this would affect your performance.
The back-office of the FCM could provide you with a service where they provide APS (average price system). This is where your fills are price averaged in a way where all your customers get the same fill. CTAs must ensure that all of their clients receive the same price for all of their trades.