Who are Commodity Trading Advisors?
Commodity trading advisors are individuals or institutions that provide financial advice to investors related to future options, futures contracts, etc. Usually, commodity training advisors are professionals who go through a registration process to become an advisor. Primarily, these advisors are responsible for providing trading advice or services related to commodity swaps or options and futures contracts.
Commodity trading advisors are responsible for handling managed future accounts. For investors, getting into most of the investments mentioned above may be challenging. It is because futures or foreign exchange contracts involve a significant amount of leverage, making them more complex. Therefore, they may need the help of professionals to help them with it. Commodity trading advisors are the perfect choice for that purpose.
What do Commodity Trading Advisors do?
Primarily, commodity trading advisors are responsible for managing investors’ assets through managed futures funds. As mentioned, these assets include future contracts, future options, foreign exchange contracts, etc. For these assets, commodity trading advisors are responsible for setting an investment strategy. This strategy will depend on investors’ goals and objectives.
As a part of their asset management responsibility, commodity trading advisors need to perform various analyses. They will also employ an investment technique to use for their assets. There are several approaches to doing so. For example, they may use technical, quantitative, or fundamental investment approaches. Based on which method they use, these advisors will adjust their working techniques.
What do Commodity Trading Advisors need to become registered?
As mentioned, commodity trading advisors are registered individuals or institutions. Their registration comes from the relevant body that overlooks their work. In the United States, this includes the Commodity Futures Trading Commission (CFTC). They may also need to register or become a member of other regulatory bodies based on the jurisdiction in which they operate. For the US, it involves being a member of the National Future Association (NFA).
Usually, there are several steps involved in obtaining a commodity trading advisor registration. It includes taking a multi-part exam and passing it. Individuals taking the test must also provide an exam fee. Once they pass the exam, they can get a registration of two years. Once they do so, they must also pay a membership fee and complete other relevant requirements.
All individuals that offer commodity trading advisor services must meet these requirements. For institutions, the criteria may differ. For example, in some jurisdictions, the principles of commodity trading advisory firms must have a CTA registration. On top of that, all the employees linked with dealing with clients must also have a CTA registration.
What is the difference between Commodity Trading Advisors and Money Managers?
Both commodity trading advisors and money managers perform similar duties. They are responsible for managing clients’ assets and providing them personalized advice. However, their registration and designation differ. Money managers are usually chartered financial analysts (CFA). They are responsible for making investment decisions focused on balancing clients’ portfolios between equity and bonds.
Money managers usually focus on helping clients achieve their financial goals. For that, they exchange assets on a client’s behalf. As mentioned, these assets consist of equity and debt instruments. Commodity trading advisors, however, focus on providing advice related to futures and commodities. Similar to money managers, commodity trading advisors also help clients with achieving specific financial goals.
Conclusion
Commodity trading advisors are individuals or institutions who have a registration. These advisors provide clients with advice about future contracts, options, foreign exchange contracts, etc. They are primarily responsible for managing clients’ assets through managed futures funds. Usually, they go through a registration process to get the commodity trading advisor designation.
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