A Commodity Pool Operator (CPO): What Is It?
A money manager or investment fund that oversees investments in commodities securities like futures and options contracts and foreign exchange (forex) contracts is known as a commodity pool operator (CPO). The operator of the commodity pool may also advise other pool members on potential investments or make trading decisions.
A commodity trading advisor (CTA), on the other hand, is a person or company that offers specialized guidance on the purchase and sale of commodities-related securities. While a CPO is similar to a CTA,
Key Takeaways
- A commodity pool operator (CPO) is responsible for the management of pooled funds that invest in commodities futures and securities associated with them.
- A CPO might be employed by an investment fund or hedge fund that takes positions in commodities.
The Commodities Futures Trading Commission (CFTC) requires CPOs to sign up. - Understanding Commodity Pool Operators (CPOs) Although investment funds that trade in commodities are required by federal regulations to register with the Commodities Futures Trading Commission (CFTC) as commodity pools, commodity pools are not a type of fund. Since the Dodd-Frank Act of 2010, commodity pools have been subject to additional reporting requirements.
Understanding Commodity Pool Operators (CPOs)
Securities that track the underlying prices of goods like corn or beef or natural resources like gold or oil are bought and sold by a commodity pool. The salesperson who finds new pool or fund investors is the commodity pool operator.
A principal is a partner in the company and is in charge of the commodity pool’s business activities. An employee who takes orders and looks for new investors for the commodity pool is an associated person. In a nutshell, the associated individual is either a supervisor of the commodity pool’s sales team or the salesperson for that pool.
Investors gain access to trades that would be unavailable to an individual investor by participating in commodity pools. When investing in commodity futures, deferring to an expert licensed to trade derivatives saves investors money from potentially costly mistakes when investing in futures and options contracts, which can be quite complex.
Example of a CPO
An illustration of a CPO would be an investment or hedge fund that uses futures or options contracts to take positions in crude oil.
The hedge fund may hold equity positions in significant oil companies. The stock prices of oil-producing companies typically fluctuate with the price of crude oil. Crude oil options contracts could be used by the hedge fund to protect their equity positions. In the event of a crude oil bear market, this is intended to lessen the downside risk associated with holding equity shares in oil producers. The CPO’s job would be to find new fund investors.
