CTA Startup
- Thread starter BGB
- Start date
Schindler Trading doesn't have a lockup. (A lockup is a period of time after an account is opened during which no withdrawals are allowed. One year lockups for hedge funds are common.) The reason Schindler Trading doesn't have a lockup is two fold...
One is that we trade very liquid futures and can easily exit our positions, raise cash, and send out withdrawals. If a fund invests in illiquid securities or has large positions in companies with small floats, they can't easily raise cash and might have a good reason for having a lockup.
A second reason is that our program is very volatile and I'm a big believer in having a diversified portfolio. If an account with us grows to an oversized portion of that person's portfolio I want to encourage them to reallocate to other asset classes, not restrict them.
While I encourage investing with Schindler Trading for a long term because of the volatile short term results, if an investor wants to withdraw their money after only one month, that's fine. Sometimes you realize an investment isn't right for your portfolio. Or something comes up (a sale on plasma TV's
) and you just need your money back.Aaron- what is your reasoning for being set up as a hedge fund as opposed to just a CTA? Does it take more work and startup capital as a hedge fund? Also, when you mention highwater mark when speaking of returns and fees, I'm guessing you mean highest month end after fees have been removed? thanks for all of the advice.
Schindler Trading is a CTA. We manage both separately managed accounts and a fund. Since we manage a fund we are also a registered CPO (commodity pool operator).
It takes more work and startup capital to form a fund and comply with all the regulations. Funds also need to be audited and file informational tax returns. (As pass-through entities they don't pay any taxes.) It is easier to hang out a CTA shingle. But a fund is easier to execute trades for than having to allocate among many individual accounts.
Yes, the highwater mark is the highest value an account has had net of fees. New profits are profits that are allocated or earned by that account above the highwater mark. These new profits are what the performance fee is based on.
Sorry. FCM is futures clearing merchant. Your introducing broker (IB) is the firm who you will execute your trades through and your FCM will clear your trades. The FCM is the one with the exchange memberships and who holds your money and posts performance margin with the exchange clearing houses. FCM's also employ brokers, so you might execute your trades directly through your FCM and not have an IB.
For example, Ffasttrade (one of ET's sponsors) is an IB. If you execute your trades through Ffasttrade you will probably be using Man Financial as your FCM. You could also execute directly through Man Financial or one of the many other IB's who clear through Man Financial. Whereas Velocity Futures, another ET sponsor, is an FCM, and you can execute directly through them or through one of the IB's that clear through Velocity.
Note that sometimes it is cheaper to execute through an IB than directly through the FCM. A case in point is FfastFill.
And don't confuse my use of IB with the common ET abbreviation for Interactive Brokers. Even though Interactive Brokers is often abbreviated "IB", Interactive Brokers is not an IB, they are an FCM. Got it?
So if someone says, "IB is not an IB, it is an FCM", you'll know what they are saying. Whoops, you deleted your post, Wercurna. Well, now that I've written my answer I'm going to post it anyway.
Quote from Aaron:
Sorry. FCM is futures clearing merchant. Your introducing broker (IB) is the firm who you will execute your trades through and your FCM will clear your trades. The FCM is the one with the exchange memberships and who holds your money and posts performance margin with the exchange clearing houses. FCM's also employ brokers, so you might execute your trades directly through your FCM and not have an IB.
For example, Ffasttrade (one of ET's sponsors) is an IB. If you execute your trades through Ffasttrade you will probably be using Man Financial as your FCM. You could also execute directly through Man Financial or one of the many other IB's who clear through Man Financial. Whereas Velocity Futures, another ET sponsor, is an FCM, and you can execute directly through them or through one of the IB's that clear through Velocity.
Note that sometimes it is cheaper to execute through an IB than directly through the FCM. A case in point is FfastFill.
And don't confuse my use of IB with the common ET abbreviation for Interactive Brokers. Even though Interactive Brokers is often abbreviated "IB", Interactive Brokers is not an IB, they are an FCM. Got it?
Whoops, you deleted your post, Wercurna. Well, now that I've written my answer I'm going to post it anyway.
Do all your clients use the same IB/FCM and if not, how difficult is it to manage seperate accounts when your clients use differing IB/FCM?
I currently execute through two different brokers and it isn't bad. The fewer the better, though. One nice thing the futures industry has to make things easier is the "give-up". If you have your account at Goldman Sachs and I want to execute through Man Financial, for example, I can ask Man to "give-up" your portion of the trade to your Goldman Sachs account. Your positions will be transferred from Man to Goldman that night. That way I can execute through my preferred broker and you can have your account at your preferred FCM.
Aaron, thanks a lot for all this useful advice!
Just one question from my side: When is it necessary to have two different brokers? You are mentioning two with a high reputation so I don't see why you might need two. For backup purposes or to bargain better deals?
Thanks!
Just one question from my side: When is it necessary to have two different brokers? You are mentioning two with a high reputation so I don't see why you might need two. For backup purposes or to bargain better deals?
Thanks!
It's also not uncommon for people to have accounts traded by a number of different CTA's, and want to use the same cash "pool" for margin. Most CTA's use only a fraction of available margin at any given time, so if they are uncorrelated, you can have a number of different managers trading the same pool of money, and never approach a margin call. It is common, in a case like that, to be allocated "notional" funds from a much larger account pool. There may not be any "actual" money in "your" CTA account with that individual, so they will not want to pull money from that omnibus account to put with your different IB or FCM. Using the client's choice of broker also eliminates one more potential conflict of interest.
Good Luck!
Jessie
Good Luck!
Jessie