- Commodity Trading Advisor (CTA)
- A professional money manager registered with the CFTC and NFA who trades futures and options on behalf of clients.
- Disclosure Document
- The required document every CTA must provide before accepting funds, covering strategy, fees, risks, and past performance. Read it before investing — it is the single most important document in the process.
- Drawdown
- The peak-to-valley decline in an account's value, usually expressed as a percentage. The maximum drawdown is the most honest single measure of a program's historical risk.
- Margin-to-Equity Ratio
- The percentage of an account's equity posted as margin. A program running 10 percent margin-to-equity is using far less leverage than one running 40 percent.
- Qualified Eligible Person (QEP)
- An investor who meets specific income, net-worth, or portfolio thresholds, granting access to certain exempt CTA programs and pools with lighter disclosure requirements.
- Limited Power of Attorney
- The authorization that lets a CTA place trades in your account without being able to withdraw funds. It can typically be revoked at any time.
- Incentive Fee
- The share of new profits a CTA charges — commonly around 20 percent, usually subject to a high-water mark so losses must be recovered before fees resume.
- High-Water Mark
- The previous peak value of an account. A CTA only earns incentive fees on profits above this mark, so they are not paid twice for recovering the same losses.
- Managed Account
- An individually owned futures account traded by a professional advisor, as opposed to a pool where investors' money is combined.
- Commodity Pool
- A fund that combines many investors' money to be traded as a single account by a Commodity Pool Operator — the futures-industry cousin of a mutual fund.
- Systematic Trading
- Rule-based trading driven by models and algorithms rather than discretionary human judgment. Most large CTAs are systematic trend-followers.
- Discretionary Trading
- Trading based on the advisor's judgment of markets, fundamentals, and experience rather than a fixed mechanical system.
A term you are reading that is not on this list? Call 317-848-8050 — we will explain it over the phone, which is usually faster than searching.