CTA/managed futures hedge funds gained 5.89% over the first three quarters of 2021, thanks to the sharp increase in commodity prices, particularly in the energy sector over the recent period. In early 2020, energy prices reached uncharted territory as the COVID-19 outbreak resulted in a global economic shutdown, which completely dampened the demand for oil. As a result, the value of crude oil dropped to zero, and its contract value in the futures market fell to negative territory, which was unpr
I am routinely asked about the advantages and disadvantages of starting a Commodity Trading Advisor (CTA) as opposed to a Commodity Pool Operator (CPO). This is a great question and one that all money managers interested in handling forex or commodity managed accounts should consider. If answered incorrectly, this question could literally ruin the chances for success as a CFTC registrant and NFA member. If that statement was not strong enough to peak interest, how about this one: a wrong decision in this space will likely cost thousands of dollars and countless hours of valuable time.
Risk control is a complex subject, and an area where simple and robust guides are particularly valuable. Few concepts are simpler and more intuitive than the stoploss, and it has taken a vice-like grip on some investors' approach to the subject. During investor meetings, I have even been asked: "Let us talk about risk control... what kind of stoploss do you use?"
Unfortunately, despite its appeal the stoploss is no panacea. In fact, it is not even a good system for the vast majority of portfolio investors, as a simple simulation will illustrate. The stoploss rule I will consider is that any position is automatically closed when it loses more than a certain fixed percentage from the initial price at which the trade was made.
The growth of investments in CTA (Commodity Trading Advisor) funds has been explosive. In 2003 alone, CTA investment growth has been in the magnitude of 30% according to the Barclay Group. Total CTA assets now exceed $66 billion. What is the appeal of CTA strategies, and more importantly, what is the outlook? This article will provide a definition of CTAs, differentiate among the approaches to trading, and then discuss reasons for their popularity. The conclusion will attempt to outline what investors should and should not expect from a CTA investment.