Copying CTA's orders in another account

  • Thread starter Thread starter lukas
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lukas

How can a CTA prevents their clients from copying CTA's trades in other accounts? For instance, say I am a client of a CTA and he manages my $10k account where I can see the orders he places. I then copy those orders in my other, $1 million account, avoiding the management and performance fees.
What is the solution CTAs use to prevent that?
 
lukas said:
How can a CTA prevents their clients from copying CTA's trades in other accounts? For instance, say I am a client of a CTA and he manages my $10k account where I can see the orders he places. I then copy those orders in my other, $1 million account, avoiding the management and performance fees.
What is the solution CTAs use to prevent that?
More...

Only one-CPO.
The CTA's clients will see all trades T+1 after they get their nightly sheets. They would only see them live if the CTA pre-trade allocates which is not typical. Most CTAs block trade at a FCM and give the trades up to other FCMs at end of day.
 
I am just asking hypothetically. Does it depend on the broker? I imagine if a client logs in to their trading platform they will be able to see the orders
 
lukas said:
I am just asking hypothetically. Does it depend on the broker? I imagine if a client logs in to their trading platform they will be able to see the orders
More...

To my knowledge, only IB pre-trade allocates and very few CTAS use them after they start because it's not scalable. The client would see the trades live as they are executed.

If you go to Wedbush Futures, INTL FC Stone, ADMIS, etc...dedicated FCMs that support CTAs, they block trade and "give up" to other FCMs they have an agreement with at end of day-where the customer custodies their accounts. My clients get their trading sheets around 11pm ET each evening. They would see them at that time.
 
That is interesting. How does an FCM a CTA uses know what margin (funds) their clients have in other FCMs' accounts? Do they just let a CTA trade whatever size they like?
 
lukas said:
That is interesting. How does an FCM a CTA uses know what margin (funds) their clients have in other FCMs' accounts? Do they just let a CTA trade whatever size they like?
More...

Good question. The broker that the CTA uses for execution needs a process in place to know what limits to apply for all account they manage. The custody broker needs to approve the CTA and has an expectation of the strategy, typical margin used and how they can contact them in times of stress. 99% of CTAs have a process that the FCMs and investors expect them to follow. In the end, the investor is held for all monies that might be lost. In addition, except for naked option sellers, most CTAs use between 3% and 20% of SPAN margin so it is typically not a problem.
 
lukas said:
How can a CTA prevents their clients from copying CTA's trades in other accounts? For instance, say I am a client of a CTA and he manages my $10k account where I can see the orders he places. I then copy those orders in my other, $1 million account, avoiding the management and performance fees.
What is the solution CTAs use to prevent that?
More...

In reality, you could imitate the CTA's account. If you can enter at his limit orders. Although your question is hypothetical, I still have to say it's not ethical. Those who will try to imitate a CTA, especially on a larger scale will realize that without knowing the risk management behind it, they will leave themselves to an emotional rollercoaster while relying on the FCM to always deliver exit trades in a timely fashion. During periods of drawdowns, they will eventuality stop imitating the CTA.
 
lukas said:
That is interesting. How does an FCM a CTA uses know what margin (funds) their clients have in other FCMs' accounts? Do they just let a CTA trade whatever size they like?
More...

It starts with the CTA who increases the lot size in control (block account) as his customer base grows, and consequently, the AUM grow as well. He has to request the FCM to increase the size of the block account equity to facilitate the new customers that come on board. The risk management of the executing FCM may ask the CTA for the reason of the increase of the lots. If there is a sharp increase in lot size, they may dig further where is the account residing (which FCM) and could request the FCM where the trades are allocated for details. Just as an FYI, an FCM may reject another FCMs' give up positions.
 
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