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Definition: Commodity Trading Advisor (CTA)
A commodity trading advisor is one who advises an individual client or a fund on investing in future contracts, options on futures, swaps, forex contracts and commodities. He/she is like a financial advisor but the role is restricted to advisory for only select instruments.
The advisory services provided by a CTA can be direct or indirect. Direct advisory involves actual trading by CTA on behalf of the client’s account and indirect advisory is about knowledge sharing on prospects of investing in select financial instruments. The CTA gets compensation or a share of the investment profit from the client for the services rendered.
National Futures Association (NFA) requires CTAs to be registered with them. CTAs are also expected to clear certain tests to prove their expertise in the area as commodity advisory is a high-risk business. The Commodity Exchange Act mandates CTAs to conform to the regulations of Commodity Futures Trading Commission (CFTC).