As the term implies, a Commodity Trading Advisor (CTA) is an individual (or firm) that, for a fee, provides advice on commodity trading, including specific trading recommendations such as when to establish a particular long or short position and when to liquidate that position. Generally, to help you choose trading strategies that match your trading objectives, advisors offer analysis and judgments as to the prospective rewards and risks of the trades they suggest. Trading recommendations may be communicated by phone, electronically via the Internet or through the mail. Some provide a frequently updated hot-line or Web site you can access for current information and trading advice.
Even though you may trade on the basis of an advisor's recommendations, you will need to open your own account with, and send your margin payments directly to, a Futures Commission Merchant (FCM). CTAs cannot accept or handle their customers' funds unless they are also registered as FCMs.
Some CTAs offer managed accounts, with the advisor designated in writing to make and execute trading decisions on a discretionary basis. The account itself, however, must still be with an FCM and in your name.
CFTC Regulations require that CTAs provide their customers, in advance, with what is called a Disclosure Document. Read it carefully and ask the CTA to explain any points you don't understand. If your money is important to you, so is the information contained in the Disclosure Document!
The prospectus-like document contains information about the advisor, his experience and his current (and any previous) performance records. If you use an advisor to manage your account, he must first obtain a signed acknowledgment from you that you have received and understood the Disclosure Document. As in any method of participating in futures trading, discuss and understand the advisor's fee arrangements. And if he will be managing your account, ask the same questions you would ask of any account manager you are considering.
Most CTAs must be registered as such with the CFTC, and registered CTAs that accept authority to manage customer accounts must also be Members of NFA. You can verify whether an advisor is registered and an NFA Member by conducting a background check using NFA's BASIC system or by calling NFA toll-free at 800-621-3570.
You can check the registration status and disciplinary history of any futures firm or individual.
You can file a complaint online. Be sure to include as much information as you can.
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