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Commodity Trading Advisor (CTA)

Commodity Trading Advisor (CTA)
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What Is a Commodity Trading Advisor (CTA)?

A commodity trading advisor (CTA) is an individual or firm that gives personalized guidance with respect to the buying and selling of futures contracts, options on futures, and retail [off-exchange](/retail-foreign-exchange-seller rfed) forex contracts or swaps.

Advisors who offer such guidance are required to be registered as a CTA by the National Futures Association (NFA), the self-regulatory organization for the derivatives industry.

Understanding a Commodity Trading Advisor (CTA)

In 1922, the Grain Futures Act was passed, directing futures trading. It was subsequently supplanted by the Commodity Exchange Act of 1936, which further regulated commodities and futures trading and required certain trading to be finished on exchanges.

The Commodity Futures Trading Commission Act of 1974 was enacted to revise the Commodity Exchange Act. It made the Commodity Futures Trading Commission (CFTC) and denoted the main utilization of the term commodity trading advisor (CTA).

Investing in commodities frequently includes the utilization of huge leverage and, in this manner, requires a higher level of mastery to trade appropriately to keep away from the potential for large losses. The CFTC has slowly expanded the requirements for CTA registration after some time. It laid out the NFA to handle CTA registration and guarantee that registered individuals agreed with CFTC regulations and NFA rules.

A CTA is a financial advisor who gives guidance specifically connected with commodities trading. To acquire the CTA registration, candidates must meet certain capability requirements, including passing the Series 3 National Commodity Futures Exam. Certain criteria, whenever met, can exempt advisors from CTA registration.

The Great Salad Oil Swindle of 1963 prompted the bankruptcy of 16 firms, including two Wall Street businesses and a subsidiary of American Express. It ignited a sob for more tight regulation of the commodity futures markets.

Exemptions From Registration

Registration as a CTA by the National Futures Association is required for individuals or firms that give guidance on commodities trading except if one of the following criteria is met:

  • Guidance is given to 15 individuals or less over the previous 12 months and the individual or firm doesn't hold itself out to the public as a CTA.
  • The individual or firm is registered with the CFTC and the guidance given concerning commodities investing is incidental to the individual's calling or the firm's business.
  • The guidance gave did not depend on information on, or targeted straightforwardly to, a client's trading interests or trading account.

Requirements

By and large, CTA registration is required for principals of a firm as well as all employees who take orders from or offer guidance to the public. CTAs are required to give counsel with respect to all forms of commodity investments, including futures contracts, advances, options, and swaps.

CTA Fund

A CTA fund is a hedge fund that utilizes a managed futures strategy. It puts resources into futures contracts and uses an assortment of trading strategies. These may incorporate systematic trading and trend following. Nonetheless, fund managers can actively oversee investments utilizing discretionary strategies, also. CTA funds offering a managed futures strategy must be registered with the CFTC and NFA.

Features

  • A commodity trading advisor (CTA) is a person or entity registered to give guidance with respect to commodities trading.
  • Advisors must meet specific capability requirements to be registered as a CTA.
  • CTA registration requires CTAs to educate on all forms with respect to commodity investments.
  • For certain exemptions, CTA registration is required by the National Futures Association (NFA).
  • The NFA was made by the Commodity Futures Trading Commission (CFTC) to register CTAs and guarantee compliance with CFTC regulations and NFA rules.

FAQ

What Is the National Futures Association?

The National Futures Association (NFA) is the derivative industry's sole self-regulatory organization. It was laid out by the Commodity Futures Trading Commission to conduct the registration of commodity trading advisors. As part of its goal to safeguard the interests of the investing public, it likewise screens the actions of CTAs to guarantee that they follow its rules.

What's a Commodity Trading Advisor?

A commodity trading advisor, or CTA, is a person or firm that educates clients in the utilization with respect to derivatives as investments. CTAs are required to be registered by the National Futures Association, the industry's independent, self-regulatory organization.

What Are Futures Contracts?

Futures contracts are a type of derivative. They include a normalized contract to buy or sell a certain security at a specific price and at a predetermined time from here on out. Futures are utilized by investors to hedge the value of securities they have positions in and to conjecture on price developments.