A Guide To The Basics Of Managed Futures
A managed future is a financial investment
A managed future is a financial investment. They are unique because they are controlled by an industry comprised of professional money managers, called commodity trading advisors.
These advisors make it their career to supervise client assets. They do this on an open basis using global futures markets as their main investment medium.
A commodity trading advisor is an individual or even an entire firm that receives profit for offering advice on options, futures, and the actual trading of managed futures accounts.
In order to practice, they must be registered with the Commodity Futures Trading Commission. Registration for advisors is done through the National Futures Association, which is a self-regulated organization that is in charge of reviewing and accepting registrations from individuals or firms.
Advisors generally manage their clients' assets using a proprietary trading system. This means that transactions made by a firm affect the firm's account but not the accounts of its clients.
Within the proprietary trading system, commodity trading advisors may be involved in going long or short term in futures contracts. These contracts can be in multiple areas including metals like gold or silver; grains including soybeans, corn, wheat; equity indexes including S&P futures, Dow futures, NASDAQ 100 futures; soft commodities including cotton, cocoa, coffee, sugar; as well as foreign currency and U.S government bond futures.
Over the past several years, money invested in managed futures has more than doubled and is estimated to continue to grow. The potential for profit is one of the major arguments for diversifying investments into managed futures.
An additional benefit of managed futures is that they lower risk in investing through portfolio diversification. As an asset class, managed futures programs are largely inversely correlated with stocks and bonds.
If stocks and bonds underperform due to rising inflation concerns, certain managed futures programs may have better increases in these same market conditions. Due to this, combining managed futures with other asset groups may optimize your allocation of investment capital.
Commodity trading advisors directly control the investment and help manage these investments for you. It is important to always choose an advisor that you trust. To do so, most of the information you need can be found in the CTA's disclosure document.
Disclosure documents must be provided to you upon request by commodity trading advisors, even if you are still only considering an investment. The disclosure document contains important information to help you determine if the advisor is a good match for you.
The disclosure document contains a trading plan and fee breakdown for the commodity trading advisor. The fees can vary greatly depending on the company.
It is important to ensure that the advisor you are considering working with does not share commissions from their trading program. If they do share commission it poses potential commodity trading advisor conflicts of interest.
Minimum account sizes for managed futures range dramatically. They can be from as low as $25,000 to as high as $5,000,000 for some very successful commodity trading advisors.
Most advisors are working with a minimum between $50,000 and $250,000. It is good to learn more about managed futures and how they can help insure your own stable and secure financial future.
by: Jack Landry
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