Emerging CTA, Prop Trader Insight, Reality Check

I was talking to an old friend yesterday about what the environment is like these days for anyone who wants to become a CTA or prop trader. He works in NYC for one of the largest FCMs in the world, and he gets solicited by all shapes and sizes, so he would know. He’s got 30 years experience on the FCM side.

According to him, the reality today is that an emerging CTA needs almost $50MM in assets to get an allocation from a big fund or family office in this environment, as well as a great track record. At least for the time being, gone are the days of a 2-year track record and $20MM in Assets Under Management (AUM) to be considered an emerging CTA.

The catch-22 here, to me, is that if you have $50MM in AUM, you are – at least cash-flow-wise – an established CTA: even at 0.50% Management Fee, you’re cash flow is $250,000 before Incentive Fees.

Another difficulty, in the short term, is that many of the seeders got hammered and/or went bust as a result of the subprime morass. These allocators allocated money to many different types of managers, not just commodity traders and CTAs. Many lost over $10B in corpus, and thus, don’t have it anymore to allocate so they are being exceptionally picky.

I’ve written about How to become a successful Prop Trader or CTA recently including how to use social media, so this is a bit of a corollary.

The great thing is that this situation is not locked limit down. Markets and environments change, so you must persist and be determined.

If you are on the fence about what to do, you might consider becoming a prop trader at a reputable prop trading firm – where they will seed you and train you – instead of launching at CTA in such a tough environment.


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