3 New Year's Resolutions for CTAs: Get your house in order
: 18 Jan 2016
It is hard for commodity trading advisors to see themselves as a commodity, but that’s what they become once their firm has been spotted by asset allocators. After all, a trader who has a 10% risk adjusted return is pretty much like another trader who has a 10% risk adjusted return. Of course the key always will be performance, but time and time again, asset allocators say how traders run their business is just as important as who they are and how they trade.
So a goal for any trader is to get their house in order. That is, make sure your business is solid, your back office efficient and your reporting clean. To help out, we came up with three resolutions all CTAs should strive for this year. These ideas will help free up your mind to focus on trading, but acknowledge to allocators that you are ready to handle growing assets.
1) Reconcile trades, positions, and balances on every account, every day
Oh, the horror of reconciling all those managed accounts! But it needs to be done. Yes, you get statements from your broker(s) and trust those, especially as that is what the National Futures Association will look at in an audit, but it’s you who has a fiduciary responsibility to your customers, not the broker. That means it comes down to you to make sure the details of your statements are correct. The broker won’t get fined, but you will if those numbers aren’t right.
2) Publish your monthly performance by the third business day of the month
Get your performance information to the agencies, on your website, to your customers and to publications that need it regularly by the third day of the month. Of course allocators may have your daily balance, but spreading the word is the key here. Don’t delay, even if you’ve had substandard performance. And with a back office accounting system, it’s an easy push of the button. Further, use this opportunity to discuss your performance. Put out a short monthly explanation, such as your system caught the stock index plunge, crude futures took an unexpected jump, etc. Here’s how you can explain your trading as well as be professional in distributing your performance on a regular basis.
3) Produce end of day trade files in the format and symbology each counter party wants without staying late to prepare them
Yes, one of the headaches of trading is dealing with the non-trading aspects. For example, brokers, administrators and allocators will want the reporting information in their own formats. Different symbology can be a nightmare: Some groups use C for corn futures contracts while others use ZC and a third want Bloomberg tickers. One broker uses a pricing format in dollars, another uses pennies, and the exchange uses pennies with fractions in eights. For many markets, there isn’t a standard format, and this can be a nightmare for any trader without the proper back office system. But having a system makes it easy. For example, the DMAXX software allows a trader to click a couple buttons to define the symbology of each broker and administrator and once input, it seamlessly formats the reports every month and sends them in the proper format requested by the firm, whether FTP’d or e-mailed securely. The accounting happens automatically as a result of trading.
These are resolutions that can help take your business to that next level. By setting up your back office to output reports in a timely and definable manner, you can show allocators you are ready to grow your AUM. To many allocators, CTAs are a small part of their overall portfolio, however, making your back office work efficiently and effortlessly (for you), an allocator can become a big part of your portfolio.
Dana Comolli is president of DMAXX (dmaxx.com), a back office software design firm for alternative investment managers. TheBooks software is designed for the trader, and is built to do price, position and order management, reconciliation, trade accounting, performance reporting, risk and data management and act as a gateway to a wide variety of execution platforms. You can reach Dana at: dana@dmaxx.com