CTA - how to set up + costs involved

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bpj

What would be the costs of establishing and then running a CTA as a one-man show?

My own estimates:

Set up:
- setting up an LLC ($500)
- registering with NFA ($750)
- drafting a Disclosure Document ($1,000).

Running:
- yearly NFA fee ($750)
- accounting fee ($200 per month)

Did I miss anything major?

I am also wondering if this fee structure of 2/20% AUM/high-watermarked profits (might be even lower for a new CTA) make it a viable business? If the overheads are that low as above, then even a symbolic $1M makes it an attractive business for a trader who trades the strategy in his own account anyway so could just as well do it with other people's money.

Can I use a track record of trading my own, or a prop firm's, account for the purposes of a CTA program? Can it be a trading history in a simulated account?
 
bpj said:
What would be the costs of establishing and then running a CTA as a one-man show?

My own estimates:

Set up:
- setting up an LLC ($500)
- registering with NFA ($750)
- drafting a Disclosure Document ($1,000).

Running:
- yearly NFA fee ($750)
- accounting fee ($200 per month)

Did I miss anything major?

I am also wondering if this fee structure of 2/20% AUM/high-watermarked profits (might be even lower for a new CTA) make it a viable business? If the overheads are that low as above, then even a symbolic $1M makes it an attractive business for a trader who trades the strategy in his own account anyway so could just as well do it with other people's money.

Can I use a track record of trading my own, or a prop firm's, account for the purposes of a CTA program? Can it be a trading history in a simulated account?
More...

Your cost assumptions are about right except the accounting fee. That will be a lot more than $200 per month once you start acquiring more and more clients. Typically CPAs will charge you roughly $25 to $50 per month per account in order to compile your NFA mandated composite performance. You can of course compile your own performance numbers but its a pain especially if you have high watermarks. You can use your own prop track record for marketing purposes but if you are not 'QEP only' then you need to display performance of all your prop accounts. If QEP only, then you have more flexibility in that regard. Sim accounts cannot be used, only actual trading.
 
R1234 said:
Your cost assumptions are about right except the accounting fee. That will be a lot more than $200 per month once you start acquiring more and more clients. Typically CPAs will charge you roughly $25 to $50 per month per account in order to compile your NFA mandated composite performance. You can of course compile your own performance numbers but its a pain especially if you have high watermarks. You can use your own prop track record for marketing purposes but if you are not 'QEP only' then you need to display performance of all your prop accounts. If QEP only, then you have more flexibility in that regard. Sim accounts cannot be used, only actual trading.
More...

Even for a small business his accounting fees are low. I got quotes from good local accountants as high as $5000/year for handling business related taxes.
 
I read a very old guide for CTAs issued by CME which mentions audits and that the CTA has to cover the travel costs of the inspectors. Is that still the case?
It also claims that the business costs can be as much as $100k per year. Surely, that is wrong nowadays?
 
Another important thing - if I have a track record in an account for a prop firm, or my individual account, can it be used for marketing purposes, considering the CTA will be a separate entity, i.e. an LLC?
 
you need to set up the clearing arrangements so you trade on exchange which is expensive. until then its not safe to take other people's money because it could be taken at any time and you won't be able to afford legal costs. id say own funds until the 50mil mark. imagine having money deposited with someone who also shows you prices.
 
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Your answer is not clear. Could you word it differently, please?
My understanding is that I trade in a single omnibus account and then the trades are applied to each client's account according to pre-set rules. If all clients' accounts are at the same FCM, then there should be no extra costs/commission.
$50M mark? Most CTAs don't even reach $5M. I want to limit my AUM to $10M as above that the strategy just does not work. It is not scalable beyond that point. Still a long way to go to set it up, though.
 
right you are doing each account separately so the client takes the risk in the structure of their account. my mistake
 
@newwurldmn
What would be your estimate of the costs then?

Please tell me it is still possible to achieve this "American dream" of starting up with next to nothing and building up to something big if you are good at what you do.
In my country of residence I would need to spend considerably more time and money to do something similar to a CTA in the U.S. - setting up the proper brokerage or fund structure, with costs running at $100k per year minimum, regardless of the AUM
 
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