How to Evaluate a Commodity Trading Advisor

A commodity trading advisor (CTA) can be a person or firm which advises investors about buying and selling futures and futures options, and that person or firm is registered with the Commodity Futures Trading Commission. Registration for CTAs is handled through the National Futures Association. However, be aware that the association is self-regulated in that it's responsible for reviewing and accepting registrations.

Instructions

Difficulty: Moderately Easy

1. Know that the handling of managed futures by CTAs is similar to the management of mutual funds. Futures essentially are contracts that require delivery of a commodity, bond, currency or stock index at a specific price and future date. For investors who would rather not trade their own account, this may be a more appealing way to invest in futures markets.
2. Scrutinize the disclosure document that should be provided to you if you're considering investing with a CTA. The document not only includes information on the CTA, but it also details strategies that will be used to manage the fund. A history of the CTAs rate of return is also provided along with a list of fees.
3. Consider the minimum amount of money needed to invest with a CTA as well as the fees charged and profits taken for managing the account. It's typical to find that the minimum investment is set at $25,000. As much as 20 percent of the profits made on your account can be retained by the CTA.
4. Look for a CTA that shows a history of steady profits. Even though past performance doesn't guarantee future results, a CTA that consistently posts profits may prove to be a safer investment.
5. Research a CTA before making a decision to invest in it. There are several online sources that offer profiles of CTAs and track returns of the top performers. Some sites provide information that covers a few months of data, allowing users to compare the performance of the CTAs listed.