I registered as a CTA in 1996 and withdrew in 1998. I had a pretty good one year return in 1994 (108% on $50k), followed by some pretty good simulated returns using AudiTrack (http://www.auditrack.com/) in 1995. My problem, and the reason I left the money management business, was that I have no ability to sell myself or my trading record. It is my belief that NO record sells itself. It also seems to me that allocators' expectations are sometimes pretty unrealistic (i.e. 100% mechanical, 5+ years record, min %100 return, max 5% drawdown, etc.). So, if you have a really dazzling record, are a hotshot salesman, have a fully mechanical approach, and have an organization to back you up -- go for it! (And maybe I'll come worship at your feet. ) [Richard]
Can somebody please (maybe Aaron?) estimate how much the costs are to build up a business as a CTA? Not talking about computers, software, data, etc. but of registration fees, disclosure agreement docs, all the bookkeeping work. Thanks a lot!!! Cheers, jc
You can check the NFA website for their fees. I think it is $200 to register with the CFTC and then $1000 per year for your NFA membership. If you prepare your own ddoc and management agreement and do your own bookkeeping, those won't cost you anything.
Thanks Richard for the info on the CME book " How to Become a CTA" I recieved it in the mail yesterday and read it last night. It is very informative and covers all the bases but is outdated. It was compiled after a seminar in 1993. It has experts in every field commenting on their experiences and opinions. The problem I have is it leads one to believe you need $150,000 to get started. It also still refers to 6%/15% fees as fairly normal. This is the way I see things. Please correct me if I'm being too naive. I think startup costs can be minimal. I can work from my home, prepare my own disc. docs. , and set up my own entity. I can purchase $1500 worth of computer equipment and also will need to pay for my data feed (any opinions are appreciated, I currently use CQG but I know it is expensive.) From here I must pay my registration and member fees and set up an agreement with a brokerage firm (again opinions appreciated.) Once this is accomplished I need to secure some customer equity to trade with. This may require some travel money but should be minimal. I believe that if I can secure $2-3 million to start then I can bring in fees of $100-300 K depending on the return. If I take part in the commisions of say $5-10 per round turn at first then that could add another $50-100K of income. I see the commission take as a way to get started with an agreement that I will cut back the comm. and the fees to those customers once I have X dollars under management. Down the road it can help pay money raisers. So that first year I can bring in $150-400K minimum and what is my overhead? I may get some accounting help for month ends and have to pay for my data feed. Please help me with other costs I am leaving out. I really hope i am not trying to only look at the positive side of things in an effort to make this work, but I feel like I am looking at every part of the equation. I hope to get much more insight from replies in the forum. As you can see I'm very serious about this undertaking and trying to cover all of my bases. Thanks, Brooks
That's a big "if" unless you already have those investors lined up. Otherwise what you say sounds good. Good luck!
BGB, You haven't said whether you plan to manage individual accounts or pool investors' money. Probably the lowest cost approach is individual accounts where you never have access to client money. If you have more than one investor, and you plan to make block trades (one trade aggregated for all accounts, which makes the most sense), your plan for allocating split fills must reviewed by the NFA. That could be tricky, and would cost money if you hire it done. The allocation plan is one of the things the NFA checks for in an audit. If you have multiple accounts, will they all be with the same broker or will you have to deal with give-ups, etc? The alternative is to create a pool and register as a Commodity Pool Operator (CPO). Trading is easier because your only customer is the pool, but the accounting is a BIG deal and very costly. There is (or used to be) a provision for an exempt pool, but the max investment is way below your $2-3m startup. I have heard that you can avoid registration altogether, if you AND all your investors are offshore. If any are using an offshore entity, you need expert advice to make sure you do it right. [Richard]
RWK- At this time I just plan to get started simple ,the way that I allocate at my current company. I plan to raise individual accounts as a CTA and allocate trades to each account. For this reason I plan to ask for a minimum of $100K so I don't have to have contracts for 1,000 $20,000 accounts. Of course my risk management structure also requires a minimum amout but $50,000 would suffice there. Anyway, as I said I believe I can find $2-3 million to start and see where it goes from there. The way I figure it that amount of equity should be enough to live comfortably and maintain the firm considering a minimal return,and view incentive as a bonus. As I said , I am also considering a portion of commission at the beginning. One of my fears is that I am unsure of whether I will be able to use any of the accounts I trade for my current company to act as a track record. I should be able to secure the$2-3 million without the track record but am wondering how long it would take to generate more interest after I get up and running.
Please refer your small accounts to me. I will gladly service those $20k accounts. I'll send you a nice Christmas present for the referrals.
Once we have such nice support here I would like to ask you guys about software for CTA management and accounting - what are your preferences ?