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Commodity Trading Advisors (CTA)

Moneyzine Editor
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Moneyzine Editor
1 mins
January 11th, 2024
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Commodity Trading Advisors (CTA)

Definition

The term commodity trading advisor refers to an individual or organization that provides advice to a pool of investors in futures contracts and commodity options. Commodity trading advisors are regulated by the Commodity Futures Trading Commission as well as the National Futures Association.

Explanation

A commodity pool is an enterprise in which funds are contributed by a number of investors. In doing so, they are able to gain leverage, participate in a greater number of trades and reduce risk. A commodity pool operator, or CMO, solicits funds and invests them on behalf of individuals. The CMO may provide this investment advice or they can hire a commodity trading advisor, also referred to as a CTA, to provide those services. Techniques used by CTAs fall into three broad categories:

  • Technical CTAs will chart patterns and use computer programs to track price trends, analyze the information and execute trades programmatically.

  • Fundamental CTAs try to predict prices by evaluating supply and demand patterns.

  • Quantitative CTAs typically have a strong background in mathematics and perform complex statistical analysis of price trends before executing trades.

Regardless of the approach, all CTAs are registered as a Commodity Trading Advisor with the National Futures Association and have typically passed the Series 3 National Commodity Futures Exam to demonstrate proficiency in the market.

Related Terms

  • Commodity Pool Operator (CPO)
    Commodity Pool Operator (CPO)
    The term commodity pool operator refers to an individual or organization that is responsible for soliciting funds and investing those funds in futures and options contracts. Participating in commodity pools allows investors to gain leverage while reducing risk.
    Moneyzine Editor
    Moneyzine Editor
    January 11th, 2024
  • Commodity Pool (Managed Futures Funds)
    Commodity Pool (Managed Futures Funds)
    The term commodity pool refers to an enterprise consisting of individual investors combining their funds to trade in futures contracts and options as a single entity. Commodity pools allow investors to gain leverage while reducing risk.
    Moneyzine Editor
    Moneyzine Editor
    January 11th, 2024
  • Commodity
    Commodity
    The term commodity refers to any mass-produced, unspecialized product which is oftentimes used as a raw material when creating a more specialized product. While the quality of a particular commodity may have specifications, its production oftentimes spans many suppliers.
    Moneyzine Editor
    Moneyzine Editor
    January 11th, 2024
  • Commodity Futures Trading Commission (CFTC)
    Commodity Futures Trading Commission (CFTC)
    The term Commodity Futures Trading Commission refers to an organization responsible for fostering open, transparent, competitive, and financially sound markets. The Commodity Futures Trading Commission is an independent governmental organization.
    Moneyzine Editor
    Moneyzine Editor
    January 11th, 2024

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