CTAs: Are You Getting Beat at Execution?

While much of a fund manager or CTA’s job is creating alpha generating trading signals (you know – the things that tell them when and where to get into the markets), the execution of those signals is becoming more and more important as the professional trading space becomes more and more automated and computerized during what we’ve dubbed the Quant Revolution.

In a new whitepaper detailing Best Practices in Algorithmic Execution by RCM’s newest business unit, RCM-X, we find just how automated things have become. Between 2015 and 2017, the CFTC found that up to 80% of all trades in the futures markets are done by automated trading. To be clear, we’re talking here about the actual placing of the buy/sell/stop/limit/etc. signal with the exchange via an API connection between the professional trader’s servers and the exchange. They highlight a simple example of crossing the spread (buying at the offer and selling at the bid) every time you enter and exit the market. Add up these trades throughout a year and it could mean the difference between a good year and a great year.

Tick Size Slippage Chart

RCM-X was launched in 2017 to provide trading technology and risk management services to the professional trading and investment management space (that’s you CTAs, CPOs, hedge funds, and prop firms). In effect, it was our answer to the question put to CTAs we work with – asking whether they believe their execution is a strength or a weakness. It was the answer to the ever more frequent question in this automated world: What’s a CTA to do? The answer, it turns out, is a CTA should be using customizable execution algorithms and sophisticated transaction cost analysis (TCA) tools as a best practice to minimize slippage by quantifying these dynamic costs created by an ever-changing market.

The RCM-X team has settled in nicely at RCM so far, building out a full suite of both stock and futures market execution algorithms as they add contract specific parameters to each algo; and we finally broke them away from coding long enough to get them to write up this whitepaper giving an overview of why algorithmic execution is important, and who (not just the managers, investors in the products need to take heed too) should be asking for it.

Click here to download the whitepaper

The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.