A commodity trading advisor (CTA) is a type of financial advisor that only supplies advice on commodities trading: typically the buying and selling of futures contracts, commodity options or swaps.
US commodity trading advisors must be certified. Registration requires CTAs to advise on all forms of commodity investments.
To register as a CTA, the applicant must pass proficiency requirements, such as the Series 3 National Commodity Futures Exam – although alternative tests can also prove proficiency.
CTA finance explained
Investments in commodities can involve significant leverage, requiring a high level of expertise. Regulations came in from the 1970s onwards to help avoid the potential of substantial losses for firms and individuals, including moves to regulate CTAs.
A CTA fund is a hedge fund that uses futures contracts to reach its investment targets. CTA funds typically use various trading strategies to meet their investment goals, such as automated and trend-following systems.
Some fund managers might apply discretionary strategies, such as fundamental analysis, combined with systematic trading methods.
These fund managers run different strategies using futures, options on futures contracts and FX forwards. CTA funds were originally commodity-focused, but they’ve now expanded their expertise to invest in all futures markets: including commodities, equities and currencies.