My friends at the National Futures Association asked me to connect the dots about my new managed futures newsletter offering from John J. Lothian Managed Futures, LLC. So here goes.

I am going to publish a daily newsletter with the trading signals from the Maple Sugar trading program that is listed in the disclosure document of John J. Lothian Managed Futures, LLC (see the disclosure document at johnlothian.com/cta). This is the same program that was offered and traded with real customer funds by John J. Lothian & Company, Inc. from 2004 to 2011 when it was registered with the NFA as a Commodity Trading Advisor. We will offer it for FREE for six months. We are aiming to start November 1, 2013.

I withdrew John J. Lothian & Company, Inc. from registration as a CTA back January of 2012 and had registered John J. Lothian Managed Futures, LLC with the NFA in July of 2011. My intent was to transfer the managed futures business from the first company to the second in order to keep cleaner lines and minimize conflicts between my growing media business and my much smaller CTA business. A few things got in the way, including the collapse of MF Global and the growth of the rest of my media business.

Changes to the System

We have made a couple of changes to the system. We changed the minimum account size from $35,000 to $50,000. We also doubled the maximum targeted profit on the sugar trades from 60 points to 120. Otherwise the system is the same behavioural rules based program as we traded before.

The reason I am offering to share the signals for FREE for six months is to show the public and potential clients how the system works. More importantly, it is to create demand for the program as a money management product with us managing customer funds under the disclosure document and a power of attorney agreement.

But this will come later. First, we build up an audience of people who are interested in trading and in this case seeing the actionable trading signals from a registered commodity trading advisor with a real track record. I understand this is a little backwards, but that is part of what makes it unique.

I am NOT a futures broker. I was a broker. I am not anymore. I am not earning any commissions on any trades. I am not taking any kickbacks from brokers whose customers are trading the system. I am offering the newsletter and the trading signals for FREE.

Part of my strategy is that I want to market directly to potential clients, not through brokers. I have nothing against brokers per se, but I believe I will have better success directly marketing to clients.

One reason for my reluctance to dealing through brokers is two-fold. One is that my trading program does not trade actively enough for most brokers tastes. Secondly, for my disclosure document, I have chosen three brokers to clear trades with and have already directly negotiated bare-bone commission rates for clients myself.

I have disintermediated brokers in my disclosure document from earning any commissions on my trading. Only the futures commission merchants would charge any commissions for their clearing services.

In the case where a broker wanted to bring me a client, we would place the client at one of the 3 firms listed in the disclosure document; ADMIS, Phillip Futures USA and TD Ameritrade’s Think or Swim. We would pay any broker who brought us a client part of our management and incentive fees. We will pay the broker for as long as we have the client, even if the broker switches firms.

Our goal is to pay as little in commissions as possible and to align the interests of the client, broker and the CTA (us). If the client makes money, the broker and the CTA make money.

Of course, a CTA can make money by charging a management fee. This is not really as much of an issue for a start up CTA though, it is more of an issue for one that has had positive performance and accumulated a large sum of assets under management. My uncle always says give someone something to conserve and the become conservative.

I believe that given the commission prices available these days and the amount of risk in the markets, brokers are better off not taking any risk on the accounts and just taking the sharing of the fees. But that is just my opinion.

One big benefit of this strategy of giving the signals away for FREE is that it forces us to more strictly follow the signals and rules of the system. The disclosure document mentions a measure of discretion we may use from time to time in our trading. Mostly this relates to when extraordinary market conditions occur. On that famous May 6 we exited a position when the Canadian Dollar plunged over 500 points. Sometimes at the end of the year, we will stay on the sidelines when markets are illiquid and most of the big players also exit the market.

I also have a personal philosophy that has tended to infiltrate the trading program. That philosophy is that if we have an outsized profit on the first few trading days of the month, take the money and stay on the sidelines for awhile. I will write more about this another time.

We hope to start the trading signals on November 1. Jon Matte is turning 50 and taking some time off with his wife this week and next. We also want to show the NFA our template for the signals and make sure we are on sound footing for our presentation.

We aim to show you a credible trading system from a registered Commodity Trading Advisor with great transparency and integrity. Only time will tell what the results will be, but we will experience them together over the next six months with our emotions under control and our reporting clear, credible and compliant.

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