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5 Key Questions to Ask a Commodity Trading Advisor

March 22, 2018 by Daniels Trading| Futures 101

The astronomer Carl Sagan once said there was no such thing as a dumb question. And that’s because the worst thing you can do is not ask all the questions necessary to obtain vital information.

This is particularly apt when you are considering working with a commodity trading advisor, or CTA, in a managed futures program. After all, you’re looking to earn a decent return on your hard-earned capital.

Managed futures involves investing in pools headed by a CTA; the commodity trading advisor is required to register with the Commodity Futures Trading Commission and must pass the Series 3 exam.

Basic Training for Futures Traders

The benefit for investors is that they can tap an experienced trading advisor to diversify into futures, such as stock indices, currencies, energy, metals and agriculture commodities.

But even with the certifications and experience, you still need to ask some probing questions of your prospective CTA to fully understand the person and the firm she represents. If possible, it’s advisable to visit the CTA’s office in person to get a deeper feel for the operation.

There are some important techniques to use when asking questions as well. Remember to ask concise, open questions that prompt the advisor to answer more fully.  Don’t let him get away with a yes or no answer when you need an answer in depth. So, don’t ask questions like, “Do you have good taste in shoes?” Because that usually serves up only a “yes” or “no” in response. The better question would be: “Can you describe your investment strategy when it comes to buying shoes?”

Another good technique is to ask questions using simple language, which signals to your interviewee that you don’t want a lot of jargon. You need answers delivered in a straightforward, down-to-earth manner.

Keep in mind that investing entails risks, and individuals must carefully evaluate their financial position before making a major decision, including working with a CTA.

The Five Questions

Here are five important questions to ask of a prospective commodity trading advisor. It never hurts to start with a soft question to get him or her warmed up:

  1. What are the minimum investment requirements? Please furnish a real-life example of how these requirements work within an individual’s portfolio.
  2. Can you explain, with in-depth details, your investment strategy? Or, in short, what are your trading goals?
  3. How does your fee structure work? Can you explain how the charges are imposed on a model portfolio?
  4. What is your investing track record in this field? Please detail the decisions you have made when faced with tough market conditions, including where you incurred losses and how fast your position recovered.
  5. Keeping up to date with the fast-moving global markets is crucial. Can you explain, in layman’s terms, the technology you deploy to stay on top of financial markets?

You may have more questions that pertain to your individual financial circumstances. You can also close your interview along these lines: “Your answers have been very informative today, but is there anything I’m missing? Is there something you should tell me that I forgot to ask?”

Conclusion

In summary, getting to know your commodity trading advisor is a major step in your decision on whether to go with a managed futures program. Don’t be afraid to ask the simple and the tough questions — because your financial well-being may be at stake.

Managed futures may have a place in a well-managed and diversified portfolio. A managed futures specialist at Daniel’s Trading can take you on a guided tour if you would like to learn more about investing in futures markets.

Basic Training for Futures Traders

Filed Under: Futures 101

About Daniels Trading

Daniels Trading is division of StoneX Financial Inc. located in the heart of Chicago’s financial district. Established by renowned commodity trader Andy Daniels in 1995, Daniels Trading was built on a culture of trust committed to a mission of Independence, Objectivity and Reliability.

Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

© 2023 StoneX Group Inc. All Rights Reserved

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