CTA using Give-Up

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nihao1234567890

Assuming you are a CTA and you use FCM_0 as your executing FCM and you have the following client accounts:

Client_Account_1_carried_by_FCM_1
Client_Account_2_carried_by_FCM_2
Client_Account_3_carried_by_FCM_3
Client_Account_4_carried_by_FCM_4
Client_Account_5_carried_by_FCM_5

You will trade ALL your client accounts in FCM_0 and use give-up to distribute the contracts to all 5 accounts with 5 FCMs.

How does FCM_0 (your executing FCM) know how much equity (total) of your 5 client accounts carried by 5 other FCM you may have in order to know what is the maximum number of contracts you as a CTA can trade?
 
Give-Up Agreements (GUA's) get signed by the executing FCM, the clearing FCM, the CTA, and the Investor.

The CTA gives an allocation scheme to the executing FCM so that they know the ratios to give to each clearing account. Typically the trades are APS'd (avg pricing) prior to being given up.

The executing FCM doesn't know how much capital is in clearing accounts at other FCM's. The GUA's essentially are guaranteeing that the clearing FCM is going to accept the trades that are given to them from the executing FCM.

Quote from nihao1234567890:

Assuming you are a CTA and you use FCM_0 as your executing FCM and you have the following client accounts:

Client_Account_1_carried_by_FCM_1
Client_Account_2_carried_by_FCM_2
Client_Account_3_carried_by_FCM_3
Client_Account_4_carried_by_FCM_4
Client_Account_5_carried_by_FCM_5

You will trade ALL your client accounts in FCM_0 and use give-up to distribute the contracts to all 5 accounts with 5 FCMs.

How does FCM_0 (your executing FCM) know how much equity (total) of your 5 client accounts carried by 5 other FCM you may have in order to know what is the maximum number of contracts you as a CTA can trade?
More...
 
Thanks, Arb Under Par.

I am new to give-up and I am considering using give-up.

I am trying to think about what are the risks to use give-up.

1. If the CTA has many accounts (120 accounts for example) in many FCMs (60 FCMs for example), how does he know the balance of each account daily or even real time? Manually login to each FCM and each accounts? This will become a time consuming process to login so many accounts with so many FCMs. Is there a better solution?

2. If the CTA check his 5 accounts balance and he decides there are enough balance to buy 10 contracts (assuming 2 per each account), so he buy 10 contracts for such 5 accounts. But just after he checked and before the order was executed Client_Account_1_carried_by_FCM_1 has a signicant withdraw (said balance to to $0 for example). The executing FCM will still allocate 2 contracts for such account according the instruction from the CTA. Can the clearing FCM refuse to accept? What happen to such 2 contracts and such account?

3. If the CTA makes a mistake, he supports to enter 10 contracts, instead he enter 100 contracts, is there a way in the executing FCM to prevent such order to be executed? Since the executing FCM does not have the idea what is the balance of such 5 accounts, how does the executing know 100 contracts are too much and the order should be rejected?

4. If there is no way in the executing FCM to prevent that, can the executing FCM still give up all to the clearing FCM? Does the clearing FCM still liable to accept such contracts? Does the investor still liable to accept such contracts?

5. If the CTA a day trade CTA, so he buys and sells in the same day for the same markets (said NQ for example), at the end he still have a lot of NQ positions (either buy or sell), how does the executing FCM give up such NQ position (buys and sells) to the clearing FCM?

Based on your experiences, what may be the risks using give-up?
What to watch out?
What are the alternatives?
 
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