Becoming a CTA, CPO, or manage futures

Discussion in 'Professional Trading' started by qtip, Sep 24, 2005.

  1. qtip


    Hello all:

    Over the years, I have learned a lot from Elitetrader regarding trading systems and development.

    I now in the process of taking the next step of managining money.

    Here some background on myself.

    I started at when it was start-up mainly building their proprietary technology. After being aquired by Charles Schwab, I quit to trade full time. Over the years, I have been developing my system, backtesting, and testing with real money. My system has done well over the past couple of years as I have made changes based on Elitetrader and other trader recommendations.

    Here is my checklist of questions about managing money. As you can see, I have posted some questions along with it.

    Thanks in advance...!

    CTA - To Do List:

    1. Pass Series 3 - If I am only managing accounts, do I need my Series 3. Is there a mininum account size on the amount I can manage before I I have to be licesned?

    2. Disclosure Documents
    3. NFA registration - How much does it cost annualy to be registered with the NFA. From what I understand, it depends on whether you are a CTA, CPO, or managing accounts.

    4. Office Equipment
    5. Trading System
    6. Setting Up LLC - Doing my research, I have found the best way to setup an trading entity is to have a LLC. Please offer any suggestions on anther way to do this is there is. Eventually, from managed accounts I do plan on becoming a CTA. I do not want to setup anything new if I don't have to.

    7. Brokerage Firms and Commission Rates - Since I have a network of brokers who wil raise money for me based on the system performance, is it better to have all accounts with that paticular broker, or is it better to have multiple brokers and offer a giveup to the broker that raises money for the one account. My opinion is too have multiple brokers just in case one goes down with difficulties. That being said, he will also become more difficult to place trades and keep up with accounting aspect.

    8. Accounting Service - Accounting Software, or Outsourcing. Is it better to have accounting software or pay the money to oustource the accounting work. The last thing I need is to be audited and not have the correct information.

    9. Track Record – 6 – 12 months, Daily performance. I currently have a track record of the last 12 months with all of the information based on the CME "how to become a CTA" pdf. Is there any other information I should have.

    10. Mechanical System - My system has been developed and there no changes to be made at this time.
    Here are the items I have taken into account when developing it.
    • Reasonable gain-to-volatility ratio
    • Non-correlation with other investment vehicles
    • Significant degree of market predictability
    • Market liquidity
    • Risk management strategies

    11. Performance Reviews – Total number of winning and losing trades, largest winner and loser, average winning and losing, and the percentage of winning. System should have equal number of longs and short trades that make about same on both sides of the market. System does not depend on a few large winners. Gain divided by drawdowns should be in excess of an 8:1 ratio. Average trades should be larger than $150 after commissions.

    12. Raising Funds - Marketing, Public Relations. This is truely the most difficult part for me since I have never done this. If someone is raising money for me... What is the industry standard on payout for this. I have no problems sharing with others, I just am not sure how much and for how long.

    13. Managed Futures Associations - I plan on joining so I can network and hopefully raise money.

    14. CTA promotional presentation - Does anyone have or know of a place where I can get some sample presentations based on the NFA guidelines. This is another difficult area for me since I have never done this and I am not registered by the NFA right now.

    Thanks so much for taking the time to read this post. Any suggestion and/or comments are greatly appreicated.

  2. i think people who want to manage money should start with the ib fa account and see how it goes. you save a lot of upfront cost and reporting requirements. in a year you will know if you are cut out for trading opm and then you can consider a more rigid business structure.

    as far as system design you must strive for a smooth equity curve. i dont care how good you think your system is if you have 30% drawdowns you will lose clients.
  3. qtip


    Vhehn, I agee with regarding drawdown. I have been working very hard on the drawdown issue. I know many have great systems that make money, but my focus is on limiting drawdown.

    I have looked in the IB account, however the only issue is that I need assistance in raising capital besides my own so the IB account will not help me.

  4. ktm


    There are many other threads where many have shared thoughts and answers to much of what you have asked. I would suggest searching some of that and narrowing the focus of the info you are looking for.

    There are a number of people here who have been through the process who are certainly willing to share any info.

    The best advice I have is to be patient as these things take a while. It looks like you are on the right track. The best way to have a competitive edge is to be able to make money consistently when others are not and to be able to make more when they are.

    PS. On # 9... my legal and accounting advisors had me throw out all prior track record information and only use that which occurred after the LLC was formed and trading officially began in the fund. This was a conservative approach but one that saves any questions down the road and eliminates potential problems if those performance numbers are markedly different once you get the LLC going.
  5. qtip


    Thanks KTM,

    I have searched the threads and have found a lot of valuable information. I just wanted to keep the information in a more ready format by starting my own thread.

    Great idea, I thinking of having all of the performance under the LLC would make for a better product in the long term since it will limit the amount of questions.

    thanks again.

    P.s. If you have any favorite threads, please post them.

  6. qtip


    Anybody else....

    I would have thought this is information everybody would want :p
  7. Hi man!

    I've been at a similar stage about 6 months ago.

    I then started as a broker at a few different companies, gained incredibly valuable insights at a boiler room and day trading brokerage, then I changed to a well established brokerage.

    I'm now marketing and trading my own trading strategy through managed accounts, i.e. I am responsible for acquisition of assets, communication with the clients and the actual trading activities.

    Although my financial agreement with the CEO is disadvantageous for me currently, I am still very satisfied.
    You can be the best trader in the world, if you can't convince total strangers over the phone to invest real $'s into your idea, you should better leave it.

  8. qtip


    Thanks for your comments. I am glad things are working out for you. I am just not sure how it fits into this thread...:confused: :)
  9. TGM


    Great advice there. Forming a CTA is not difficult. The test is cheap and incorporating is cheap. The accounting bill every month is only as expensive as your clients are numerous. The above advice on track record will save your backside in an Audit. Alot of guys raise money on past records and then have fits when they see the CFTC. Much better to start from scratch in an LLC.

    I have been around a few successful CTA startups. They raised anywhere from 50million to 200 million per fund. One thing I would share with you is that location is important. Very important. You can raise money alot faster in London, New York, Chicago were you can go around an introduce yourself. Raising money when you are not around money is very difficult. Marketing is more important than your trading ability (unless you have contacts off the bat). Great traders go unfunded and half ass guys pull in tons of dough. Now once you have the dough you have to do something ---but out of all the CTA's not many of them are great. They are just businesses.

    It is all in the marketing once you can put up some kind of numbers. I did not see any money raised by cold calling people (not that it can't be done). Just getting out and talking to people and start putting up numbers under the LLC. Just start were you are. Even if with only 10k or 5k. Just start and then start promoting your numbers and your greatness. I have seen brilliant traders NOT be able to raise money because they can't market themselves.

    IB did a tutorial on becoming a CTA on their website. Look it up and watch it.
  10. qtip


    Thanks so much for the advice and the support. Can you share more on different ways on how a CTA would promote themselves without breaking the marketing and advertising rules set by the NFA and CFTC. This is one area where I know nothing.

    Thanks so much!
    #10     Sep 24, 2005