By Dwayne Strocen
Influencing The Derivatives Market
Understanding the role of a CTA and how they can influence derivative markets and be used as an effective tool in the managing of risk and risk metrics. Learn whether a CTA is the correct investment professional for you or your company. Learn how to best employ a risk reduction strategy.
Today’s Commodity Trading Advisor is no longer to be thought of only as a Portfolio Manager. His role has expanded considerably as investment products become more complex.
Commodity Trading Advisor, Genuine Trading Solutions, a registered CTA with the CFTC, says the responsibility today of a CTA is a constantly evolving role in today’s market place.
Not so long ago a Commodity Trading Advisor was content to be known as a Portfolio Manager trading commodities and futures for a managed futures fund. There is no question today’s investor has become more sophisticated. In response, today’s selection of investment products has become ever more complex and varied. The need for the CTA to understand the uses and management of these products becomes even more acute.
So what exactly is the role of today’s Commodity Trading Advisor. Certainly trading of derivative products for a managed futures fund continues to be as important as before. A CTA has also become more involved with derivative analytics. This role is essentially focused upon becoming an strategist. He needs to structure and analyze the more multi-faceted requirements demanded by hedge funds, pension funds and structured products.
The use of derivative analytics to manage the adverse risk of an equity or bond portfolio brought about by adverse market conditions is critical in preserving asset growth. The uses of hedging to prevent volatility has long been understood by the largest institutions. It is now available to the smaller sized company and to the individual investor. No doubt as products continue to evolve so too will the CTA. We continue to evolve to meet the need of today’s professional money manager.
Derivative products are no longer limited to exchange traded commodities futures and options. There continues to be an ever expanding list of over-the-counter products. These are SWAPS. SWAPS and privately transacted products transacted without the use of a recognized exchange. The difficulty is the buyer and seller must find each other to undertake such an arrangement, not always easy. The second problem is no liquidity. There is no one to sell this too should one of the parties wish to terminate the transaction prior to the agreed upon date.
A Commodity Trading Advisor’s role is no longer sufficient to be limited to trading. It is now imperative to understand the industry in a new light so to understand the changing investment environment. Analysis now becomes the catalyst to include a value added service to retain customers. This includes structured products, risk management and OTC derivatives. Continuing education has been and continues to be the hallmark of the best in the industry.