There are several types of industry
participants in the managed futures sector.
• Commodity Trading Advisors
(CTAs) are responsible for the actual trading decisions
and activity of a managed futures account.
• Commodity Pool Operators (CPOs) assemble
public funds or private pools, usually in the form
of limited partnerships, and select the trading advisors.
• Futures Commission Merchants (FCMs) are the
brokerage firms that execute and clear CTA-directed
trades on various exchanges.
Managed futures advisors and investors benefit from
the structural efficiencies of the futures markets.
Liquid markets facilitate entering and exiting market
positions. Other key efficiencies include:
• Use of leverage
• Minimized transaction costs
• Liquidity/rapid execution
• Opportunity in rising, falling, or trendless
markets
• Value capture in the market.
Evaluating a CTA
Investors should understand that there are risks
associated with trading futures. An investment with
a CTA should include a complete review of the CTA’s
disclosure document. In this review, key aspects that
should be evaluated include:
• CTA trading style
• Trading history
• Performance
• Measure of risk-adjusted returns
• Fee structures.
There are two primary types of trading styles. Many
traders will incorporate aspects of both.
• Technical traders: rely on designed systems
and computer signals to guide in and out of trades
• Fundamental traders: rely on economics, politics,
and the principles of supply and demand.
