CTA or not to CTA

Discussion in 'Professional Trading' started by foo, Oct 15, 2006.

  1. foo


    I did a fairly long search on this site this weekend but, I didn't find exactly what I was looking for so, here goes some of my history and question about taking the CTA route. On a side note, man there is some great advice hidden in these old threads. Acary, I think it was, hit the nail on the head for me about the markets. Wow.

    I am a commodities broker after first going the financial advisor route. I should have skipped being an FA. Boy was I wrong about that industry having to do anything with trading. If only I would have used the search button back then.

    In " FA training" I knew I was in big trouble when one of the trainers put up a daily chart of some stock and said "what is this called", an some of the new eager recruits spit out--a chart, or stock chart and the like and, the trainer replied "a broker's biggest waste of time". It hit me like one of those scenes in a movie where the camera zooms out real quick. I was in the wrong job for trading and I knew right then and there. The rest of training for me involved beer at night, and a poor attitude to follow the next day at training. Nothing against FA's or the industry but, for me I was in the wrong place. Within 3 months after training I bought out of my contract out for a big chunk of change to go work for a commodity firm who made me a great offer to come work with them. I am still paying to this day for this mistake. I also may be the first trainee in FA history to have there non-compete contract enforced against them.

    Right now I run my own branch office and do only commodities and SSF. It is exactly what I want. I have a lot a hedgers (I live in a very agricultural area). I enjoy the broker side of the business and it provides a decent income and I get to trade anything I want. I have found my "edge" as I guess it is called. I spread trade commodities. It is just really experience and that is all it is. I know more than the next guy and have a better chance at making money than he does because I put a great deal of time into it (not backtesting it). I have no big secret to protect. This is why I think I have turned a big corner and need some advice.

    It sounds like CTA is the way to go. I read the CME guide and have worked with some CTA's in the past so, I have the basics covered. My question is it possible to run a CTA program and keep an existing commodity brokerage business (it is small for now) running along side it easily? They seem like very close cousins in certain aspects. I would like to get my track record going that's for sure.

    I am not worried about attracting tons of money right away because I will still have the brokerage side. I figured I will build both sides at once and get that track record going or, is this not realistic (too expensive). My approach to the markets does not take a great deal of time so, "I have that going for me" (B.M.)

    Anyways sorry to drone on but hopefully someone has had a similar path that they would like to share some ideas.

    Please, no brokers are evil or, why don't you trade your own money because, I do.

    Hopefully this thread will remain somewhat flame retardent

    Thanks in advance.
  2. It's not supremely expensive to form a CTA so, why not give it a shot? You'll need additional NFA registrations ($500) and a D-doc ($10K-30K depending on the lawyer) and more time from your accountant ($200-700/mo) and other miscellaneous expenses. Say, $20-25K total, to get off the ground and operate for the first 6 months. If that's a "small amount" in your present financial condition, why not give it a shot?

    You'll want to plan how many hours per day, week, month you spend (A) trading for the CTA, (B) marketing for the CTA, (C) bookkeeping for the CTA. Can you take that much time away from your broker job?
  3. foo


    uncertain thanks for the reply......I will want to trade very similar to what I do now. Let's say I am a sole prop to start with and I get my DD made. I do have a connection on that on one so I can get it done for a $1000 from what I believe to be a very reliable man who knows the industry well (he does it as a side job). Now I have my first client under my CTA. What does the accounting for maybe 1 to 5 clients entail----can it all be done monthly? I would hire that out of course.

    I reread what I just wrote and it comes off wrong. I guess I just want a real bare bones CTA up and running to see if it is what I think it is without sacrificing the business I have now. I want them to operate side by side. Like I said I am fortunate to trade in a way that affords me what I think, will be plenty of time for both.

    I picture it this way:

    I have a my regular broker business "PoDunk Futures" that I will run the same way with my same FCM and my same existing clients--- expenses are known for this and are basically 1)quotes 2)software (Ensign--can't say enough good about them) 3)office rent 4)miscellaneous and then all else is paid for. I believe these overlap quite nice for the CTA side

    Now the second part---- I register with the NFA ($200) I get my DD done ($1000), find an accountant for the monthly reporting on each account ($15 per month per client). Now I am a certified CTA.

    Here is where I see a distinct advantage of being a CTA--

    New potential doctor client X walks in the door. I can basically say to him that you can invest with me and here is my Disclosure document and, he decides that looks good and he likes my program and invests the min. Now he an investor in my commodity fund---The P-Fund

    New potential farmer client Q walks in the door who wants to hedge his cattle and wheat. No problem I do that. I clear thru so and so and, here is the paperwork (he becomes a hedge client of mine thru my existing business PoDunk Futures). Now Q asks about trading and I reply I am also a CTA and you can have a managed account with me also. Here is my DD and so on he joins the CTA side also---the P-Fund.

    I am able to offer potential clients 2 different routes---managed money or do business thru me as a broker or both.

    PoDunk Futures and the P-Fund running side by side. There will be enough interest in PoDunk Futures to find clients for the P-Fund. One feeds the other to get off the ground.

    2 completely different business's that have many things for me in common expense and trading-wise.

    It just seems like a good fit to me and hopefully once I had some history as a CTA and get a track record I could go that route exclusively.

    I want to pursue this if possible. Feel free to point out flaws or general boobery (which I sure there is) in this idea.

    I realize i am leaving out the hard part--making money but, I want to look as just the business side of what is possible and what is not.
    Thanks again
  4. not a bad idea. unless you find a few high NW guys or an IB/mutual/fund of fund you invest in a CTA to begin with your unlikely to attract large amounts of money. A few of my friends in the buiz took about 2-3yrs to attract any sizable decent funding.

    so having a side buiz with CTA isnt a bad idea, ull need the cashflow to cover your overheads. If you can automate your style of trading then itll make it less time intesive
  5. CBOT404


    Your clearing firm should be able to assist you with getting this set up. There are plenty of IBs out there that run their brokerage business side by side with their CTA. Obviously, this needs to be put in the DDoc. If you have any other questions send me a PM.
  6. 10-20K for a DDOC???
    No way bro...
  7. foo


    Poh Poh

    What price were you looking at?
    After doing some research this weekend I am almost leaning towards doing my own. I have heard mixed reviews on doing one's own but, I believe it has advantages also.
  8. jessie


    You can absolutely do your own DD, I did and I know others who have as well. The NFA compliance people will pretty much walk you through it if you ask them to, and will review everything you want to put in or leave out. I have found them to be really helpful and willing to spend as much time as needed with a new CTA. You will also have to register the CTA with NFA which is $1000 in addition to your own registration, but the whole process is really pretty cheap to get things set up. You can actually do your own accounting, especially if you just have a couple of accounts when starting up (NFA doesn't require outside accounting, but they prefer a particular method for their audit purposes; they will help you set that up as well if you wish.) but if you aren't comfortable doing it in house, having that done by a CPA who knows trading is never a bad idea. Remember, NFA will actually come to your place of business at some point in your first year and audit everything you are doing, no matter how small you start out (My first NFA audit was done at my New Mexico kitchen table, looking at about a dozen client files.)
  9. foo


    Jessie what do you mean $1000 in addition to your own registration. It is $1000 for corporation or $500 for a sole prop, I believe but, what other registration? Do you mean Disclosure Document? Also did you start out doing your own accounting when you had a small amount of accounts if so, what software could one use (Excel)?

    Thanks in advance

    I do not want to go the absolute cheapest route but, I want to consider all options that are available and then put together a solid plan.

    I appreciate the inputs and experience.
  10. PM me and I can give you my contact...he works inexpensive (template) but is super super informative and worth every penny...
    #10     Oct 16, 2006