Managed Futures FAQ

What are managed futures?

Managed futures are an alternative investment vehicle offering the investor access to the futures and options markets through a Commodity Trading Advisor (CTA). CTAs are certified money managers who make decisions to purchase or sell particular managed futures investments on behalf of their clients. CTAs perform on behalf of their clients through an assigned, revocable power of attorney.

Why choose to invest in managed futures?

Managed Futures, as alternative investments, represent an asset class that has the potential to provide returns that are uncorrelated to the stock and bond market. When added to a traditional portfolio of stocks and bonds, alternative investments can potentially increase returns while reducing risk of the overall portfolio.

What advantages are there in investing in managed futures?

Investing in managed futures is attractive because managed futures offer the investor advantages such as liquidity, lack of counter-party risk, market transparency, and access to such diverse markets as natural resources, raw materials, and financial instruments. As well, managed futures trading plans can be designed as an effective inflation or deflation hedge.

Who should invest in managed futures?

Managed futures are not appropriate investments for all investors. Futures and options trading are complex and risk oriented. Potential investors need to carefully examine their risk tolerance, capital availability, and willingness to assign assets for trading to a CTA.

What do managed futures invest in?

CTAs trade a host of liquid global markets ranging from currencies to stock indices, agricultural commodities, precious metals, base metals, interest rate products.

Are there special risks associated with managed futures?

Investing in managed futures carries certain specific risks. In particular, it is important to understand that the high degree of leverage associated with managed futures investing can work both for and against a managed futures investor. The use of leverage can lead to large losses, as well as large gains. In some cases, managed futures accounts are subject to substantial charges for management and advisory fees. Investors should carefully study the disclosure document of the CTA before making any investment in a managed futures product.

Are managed futures safe?

Managed futures accounts, like all other accounts of customers doing business through a U.S. exchange, must be executed by and carried on the books of a "clearing member" (a brokerage firm or FCM that holds a membership in an exchange's clearing organization.) Once a trade between two clearing members is matched by the exchange, the rights and obligations under the futures or options contract do not run between the original buyer and seller; instead, they are between the seller and the clearing organization. Although each exchange's clearing function operates somewhat differently, at minimum they all ensure that there are sufficient resources to meet obligations by: (1) collecting performance bonds; (2) marking contracts to the market at least once daily; and (3) establishing capital requirements and maintaining minimum financial standards for clearing members.