Commodity Futures Trading

A Managed Futures Account is a sort of alternative investment. Unlike a fund, managed futures techniques can take both long and short positions in futures contracts and options on futures contracts in the worldwide commodity, Interest rate, equity, and Forex markets. Managed futures are controlled by a licensed Commodity Trading Advisor, or CTA, who are controlled in the U. S. by the commodities trading Commission and the National Futures Association, or NFA. Some are compensated on a performance charge basis, usually 15% to 30 percent of profits. Other CTAs are compensated by charging a per trade cost whenever the account or fund trades. Most CTAs also charge a management charge each year, customarily between 1% to 2% of the account size. Managed futures accounts include, but aren’t restricted to, commodity pools and commodity funds. MFAs could be traded using any number of techniques, the commonest being trend following. Trend following involves purchasing markets that are making new highs and shorting markets that are making new lows.

Differentiations in trend following managers include duration of trend caught ( short term, medium term, long-term ) as well as definition of trend ( i.e. What is regarded as a new high or new low ) and the cash management / risk handling methodologies.

There are more strategies managed futures advisors use, including fundamental strategies, option writing, pattern recognition, arbitrage, and so on. Nevertheless trend following and adaptations of trend following are the paramount system. For the years 1980 to 2010, managed futures, as measured by the CASAM CISDM CTA Equal Weighted Index, had a compound average yearly return of 14.52%, while for U.S. Stocks ( based mostly on the SP five hundred total return index ) the return was 7.04%. Managed futures have traditionally displayed extraordinarily low correlations to conventional investments ,eg stocks and bonds. Following modern portfolio concept, this shortage of link builds the robustness of the portfolio, reducing portfolio volatility and risk, without major negative impacts on return. This dearth of relationship stems from the proven fact that markets have a tendency to “trend” the best during more erratic periods, and periods in which markets decline are the most uncertain. In reality the CISDM CTA Equal Weighted Index has been up twenty-six out of the 32 times the SP 5 hundred has been down five percent or bigger since 1980.

Commodity trading carries risks and is not suitable for all investors. Past performance is not indicative of future results.