Any conflicts if CTA trades personal account with opposite signals frequently?
- Thread starter OddTrader
- Start date
Is the personal account funded in anyway shape or form by the money you raise/earned from clients?
If I was a CTA, I would manage the CTA account as the primary account. Why would your style differ from trading client money and your own money if you are profitable and consistent?
You can offer several tranches of strategies to your clients, this way you can have different systems and let your investors gauge what they want to put their money into or not into.
http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=1855
If I was a CTA, I would manage the CTA account as the primary account. Why would your style differ from trading client money and your own money if you are profitable and consistent?
You can offer several tranches of strategies to your clients, this way you can have different systems and let your investors gauge what they want to put their money into or not into.
http://www.nfa.futures.org/news/newsNotice.asp?ArticleID=1855
And to the NFA/CTFC when audited.
There should be a statement in the disclosure document something to the effect of,
"Mr. Schmoe, the Advisor's principal, does have a personal trading account. In the future, this personal account may or may not follow the same trading program being offered in the Disclosure Document. Mr. Schmoe reserves the right to continue to trade for his own account. Clients will (or will not) be permitted to inspect the trading records of such personal accounts."
That takes care of the legal disclosure. Now on to the ethics of it. At some point, you are going to need to explain those trades to someone, be it a client or the NFA. There is nothing wrong with having a prop account that outperforms the client accounts. There is also nothing wrong with making trades in a prop account that are outside the parameters of the offered program. I do the same in my own account. It is subject to higher leverage and riskier trades. My prop performance typically doubles or triples client accounts, but this is disclosed and explained to all clients. Included in that is an explanation of WHY my personal account realizes higher performance.
However, my personal account never profits by taking the other side of a trade in client accounts. You would never be able to explain that away. You are a CTA-dvisor. Why would you ever be advising clients to buy something that you are selling? And you really better not ever be in a situation where a client is the counterparty to a personal trade. We handle this partly by trading the personal account from the same master account as the client accounts. If we were to trade accounts against one another, we would get a nice little inquiry from the FCM.
"Mr. Schmoe, the Advisor's principal, does have a personal trading account. In the future, this personal account may or may not follow the same trading program being offered in the Disclosure Document. Mr. Schmoe reserves the right to continue to trade for his own account. Clients will (or will not) be permitted to inspect the trading records of such personal accounts."
That takes care of the legal disclosure. Now on to the ethics of it. At some point, you are going to need to explain those trades to someone, be it a client or the NFA. There is nothing wrong with having a prop account that outperforms the client accounts. There is also nothing wrong with making trades in a prop account that are outside the parameters of the offered program. I do the same in my own account. It is subject to higher leverage and riskier trades. My prop performance typically doubles or triples client accounts, but this is disclosed and explained to all clients. Included in that is an explanation of WHY my personal account realizes higher performance.
However, my personal account never profits by taking the other side of a trade in client accounts. You would never be able to explain that away. You are a CTA-dvisor. Why would you ever be advising clients to buy something that you are selling? And you really better not ever be in a situation where a client is the counterparty to a personal trade. We handle this partly by trading the personal account from the same master account as the client accounts. If we were to trade accounts against one another, we would get a nice little inquiry from the FCM.
Why Itâs Smart to Be Reckless on Wall Street
http://blogs.scientificamerican.com.../why-its-smart-to-be-reckless-on-wall-street/
"
Here is a guaranteed way to get paid well if you work on Wall Street. Find a best friend at a competing bank or hedge fund and take opposite sides of the same large bet. In one yearâs time one of you will have a huge profit and get paid well. The other person will have lost and perhaps be fired. The sum of both your profits will be zero, but the sum of what you get paid will be positive. Split the pay.
"
http://blogs.scientificamerican.com.../why-its-smart-to-be-reckless-on-wall-street/
"
Here is a guaranteed way to get paid well if you work on Wall Street. Find a best friend at a competing bank or hedge fund and take opposite sides of the same large bet. In one yearâs time one of you will have a huge profit and get paid well. The other person will have lost and perhaps be fired. The sum of both your profits will be zero, but the sum of what you get paid will be positive. Split the pay.
"