That is a strong statement. If you want to hold yourself out to the public (for example post results at the reporting services) you need to be a CTA or CPO regardless of how many clients or assets you have. The numbers thrown around on startup costs are in my opinion out of line for someone starting small, as it appears the poster here is. It reminds me of the people who think that starting a regular RIA business needs to cost a bundle. Or, have a tax preparer to do a plain vanilla 1040 tax return. Or, heck, the people who think you need a wedding planner to plan a wedding. These gatekeeper middlemen have certainly done a good job marketing the necessity of their services. In my experience the NFA is actually very helpful. As someone else suggested I think one of the best things you can do is contact them with questions.
First, the industry is UNREGULATED! So, it doesn't take rocket science to figuer this out. Talk to an accountant. Talk to an Securities lawyer and find a Clearing Firm that will take you on. Financial Documents per disclosure will need to be filled but they are less "informative' than starting a B&D. Bang the phones and start rasing money. Of course, good luck because odds are....it wont happen. (It makes no sense to start a CTA/CPO fund if you have less than the registration minimum of 16 clients and less than the minimum $25 million in AUM. funds, and prop. trading groups. ) Also, FYI Hedge Funds are no longer the "Hot" item. In fact, most wealthy individuals are running from Hedgefunds as fast as they can. TOP was in back in 2008.
It depends on a hundred different parameters. For an emerging fund, I've seen anywhere from 2-5% of AUM... or, 25%-35% of fees.
Not really sure what this means. The futures industry is absolutely regulated... combination of CFTC along with the industry self-regulator, the NFA. The securities industry is of course regulated by the SEC. Not sure about the relevance of "hot" item, either. I don't do it to be a conversation item at cocktail parties. At the end of the day, investors will forever be looking for attractive risk-adjusted returns... no matter what structure provides those returns.
I think that exemption only applies if you're not charging fees... if you have any money under management that you are charging fees on you must register... Not positive but should be investigated. Additionally if the OP is going to be trading forex they will need the Series 34 as well... A huge part of being a cta is understanding the operational end of things. There is a lot of compliance you need to have in place and are responsible for... If you are a one man band, raising funds, opening accounts, collecting docs, providing customer service (especially during a draw-down), maintaining your research, providing monthly reports, keeping your disclosures up to date and yes finally watching the and trading, TAKE A LOT OF TIME. Research the CTA business model and then write a business/operations plan. Know when and how you are going to accomplish these things and what if any cost there will be. You also need to clearly have a plan for doing all of this when your revenues are low. Each year your paycheck is going to be different, how do you keep your firm alive when you only make 10k. How do you keep yourself and your own finances afloat when things are that slim? All these things you have to case study and think through. Don't hope for the best, plan, plan, plan and if you can't make sense of it, don't risk your clients money or your good name. Trading for yourself will never make you the money that managing funds will, but the responsibilities and work load are very different. The NFA is your friend, spend some time getting into those documents and requirements and don't be afraid to call them for direction. Launching a CTA on your own isn't that hard and if you're boot-strapping your company you need to save every penny you can... and I mean every one. When I launched my firm, I sold the three story house and the convertible Jag, bought a Chevy S10 and moved into a studio apartment (no lie). Unless you have significant personal assets, or can immediately raise a very large amount of money where admin fees will allow you to service all your current debt for the next three to five years, you will likely need to downsize or make some provision for surviving. Here is the truth about small business... it's not rocket science but it takes common sense. If you do your home-work and the numbers don't add up, making unrealistic adjustments to make yourself feel better doesn't improve your odds. Performance fees... for now forget them. You're going to have good years and you're going to have bad years. You can't count on them, at least not until the AUM are so large that a good year covers your for several years. Admin fees... these are the hardest to collect and if you're new your clients are going to him and haw about them. To bad. You're running a business here and you need to keep the lights on to do your job. If they think a "good trader" shouldn't have to charge an admin fee, they don't understand investing - drop them and look for a client who gets it. If you charge 2% for an admin fee than for every million you have under your belt you will collect $20k before taxes... and while we're talking about taxes, make sure you do your homework here and have hired a good accountant. In the first couple of years you may have difficulty raising your first three to five million, so the question is, can you live and run your company on $20k a year. If not, what is your fix, downsize, second job, trust fund... point being you have to know before you jump in, how you will manage company growth and personal/family needs.
The futures industry is absolutely regulated... Futures yes, "HEDGE FUND INDUSTRY" as a whole no. You are correct. I deal with the top 5% and they are looking for way's to put capital to work. However, they left the Hedgefunds back in late 07 early 08. So, cocktail parties you speak of are yelling "HEDGEFUNDS". Smart money has already left the party.. Game over except for the mom and pops who have recently discovered that they can actually get into a so called "HEDGEFUND" with out falling under the definition of "Accredited Investor" and without having "Capital" requirments that were minimum for entry. I have been raising money for Hedgefunds since 05 among other investments world wide.
I asked the SEC about this some years back. They said, "If you can't raise about $50 Million quickly, you probably shouldn't bother". Their reference was the amount of money it takes for proper compliance vs. the assets under management.
EMR, Where are you seeing the newest niche being in terms of allocation interest. When I came in to the managed side of things all the rage was "algorithm", which was good for me as I was a computer guy of sorts. Now it feels like that is slipping more and more into the retail sector. You may pull clients with assets under $5m but above that they seem uninterested... Of course that has a lot do with the fact that algo never produced like they wanted. Too many traders on the train diluted the effectiveness. I get the sense we're reverting back, at least on the institutional and high net worth side, to a more fundamental mentality where unique valuations are more interesting. TW
Scat I think that is true on the SEC side. On the CFTC I'm sure the number is smaller as the compliance in not nearly as complex... But the point you're making is important. Operational Impact and Risk are very real, and anyone looking to manage funds has to be able to quantify the time and money needed to meet the burden. Some of it will depend on what path the OP decides to take. None of them are easy... this is a given.
If you're making 400k net and will quadruple that in the upcoming year, what exactly is the purpose of trying to start a forex trading hedge fund? It makes no sense and it would not make sense to any serious investor. They would want a piece of something that is (supposedly) making great profits that seem to be growing at an exponential pace. Regardless, with the money you're making, why would you want the hassle of investors anyway?