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- Managed Futures
Welcome to our Frequently
Asked Questions section for Managed Futures. If you have any questions
that are not displayed below, do not hesitate to write us at info@tgrfinancial.com.
We'll be glad to answer any questions you might have.
1.
What are Managed Futures?
2. What is a Managed Futures account?
3. Who should invest in Managed Futures?
4. Are Managed Futures suitable for everyone?
5. Are Managed Futures a good short-term investment?
1. What are Managed
Futures?
Managed
Futures are a type of alternative investment established to trade
in the global commodities, futures, and options markets. Successful
performance in these markets does not depend on continued upward
movement in traditional equity or bond markets. Unlike other futures
accounts, however, in a Managed Futures account a professional trader
known as a Commodities Trading Advisor (CTA) is responsible for
determining what trades to make and when, pursuant to a power-of-attorney
or limited trading authorization.
Although you do not
need a professional money manager to invest in the futures and options
markets, our opinion is that professional managers
greatly outperform individual investors. The futures markets are
so vast that it is difficult, if not impossible, for an individual
to master more than a small segment of trading. The term “Managed
Futures” describes a managed approach to futures market participation
whereby professional money managers, called Commodity Trading Advisors
(“CTAs”), trade futures and forward contracts pursuant to a power-of-attorney
or limited trading authorization. CTAs are federally-regulated professional
money managers who specialize in trading futures and forward contracts.
The term “CTA”, however, is a misnomer—while futures and forward
contracts may represent agricultural products, energies, cattle,
hogs, metals, and other commodities, many CTAs also focus on trading
currencies, financial instruments, stock indexes and single stock
futures. CTAs work full time to trade and manage investments and
are registered with the National Futures Association.
Investors may engage
a CTA to trade individually managed accounts or invest collectively
with other individuals in a commodity pool or fund, thus sharing
the potential risks and rewards of many different markets among investors
in the pool or fund.
When investing in
Managed Futures, the goal is to profit from moves in the contract
prices of commodities, stocks, bonds and currencies -- not an appreciation
in value of the underlying asset -- and each CTA employs his or
her own strategy for profit maximization.
2. What is a
Managed Futures account?
A
professional Managed Futures account is like any other brokerage
account established to trade futures except that you give permission
to make all trading decisions on your behalf through a revocable
power of attorney to a Commodity Trading Advisor (CTA). In this
sense, the advisor is the account “manager.” The advisor’s compensation
is normally a management fee and an incentive fee, tied to the profitability
of the account.
3. Who should
invest in Managed Futures?
Many
investors including individuals, corporations and institutional
investors can benefit from adding Managed Futures to their portfolios
because Managed Futures, as an asset class, can provide valuable
diversification to a traditional portfolio of equities and fixed
income investments. Managed Futures are not appropriate for everyone.
We can help you determine if an investment in Managed Futures is
suitable for your portfolio.
4. Are Managed
Futures suitable for everyone?
The
simple answer is “No”. Although Managed Futures can provide badly
needed portfolio diversification for many portfolios, only investors
with risk capital who understand and can deal with the risks and
rewards involved in trading futures should invest in Managed Futures.
We can help you understand both the risks and possible rewards of
this type of investing. Generally, in addition to having the required
risk capital, an investor needs to have realistic expectations about
returns on investment and tolerance to temporary drawdowns that
inevitably will occur with Managed Futures products.
5. Are Managed
Futures a good short-term investment?
Because
futures markets tend to be cyclical, we do not recommend that investors
treat a Managed Futures account as a short-term investment. Rather,
you should view Managed Futures as a “core” portfolio asset class.
If you are looking for short-term trading opportunities, visit the
Broker-Assisted Trading sections of our site and
contact a TGR FINANCIAL broker.
On this page you will find questions and answers relating to Managed
Futures. Go to the Broker
Assisted Trading FAQs if you wish to view specific answers
related to that subject.
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