Managed Futures Trading Everywhere
Have you noticed recently that every Futures Trading Firm seems to be marketing their Managed Futures services? Claims of unique and alternative investment opportunities, diversification, CTA rankings. You name it, and there is marketing material around it. So what are Managed Futures Accounts?
The idea of managed futures is very much what it sounds like… You’re allowing someone else to manage your trading account. That someone is referred to as a Commodity Trading Advisor (CTA), and that trading account is made up of futures and futures options – much like a mutual fund would be. The difference in the managed futures fund would be that it’s made up of commodities, interest rate contracts, equity contracts and currencies.
When Did Managed Futures Start Trading?
Managed Futures Accounts have only been available since the late 1960’s, but according to the CME Group’s website, they have skyrocketed in popularity. Although actual values are difficult to monitor, their site estimates that 5 year growth from 2002 to 2007 went from $45 Billion to over $200 Billion. For more information, they now have a Managed Futures resource section on their site at http://www.cmegroup.com/education/managed-futures-resource-center.html – and rightfully so! If you are going to give 3rd party CTA’s $200 Billion to trade their products, it’s best you understand what you’re getting into!
Is there a minimum investment to get into a Managed Futures Account?
Although account minimums for trading are typically determined by your brokerage firm and CTA, we have seen minimums range anywhere from $10,000 to $50,000. Ultimately, the basis of a managed account is to allow your CTA to diversify your account – so those minimum’s are always going to be subjective based on what the CTA believes is an ample amount to allow for that diversification.
What’s a Commodity Pool as it relates to Managed Futures?
CTA’s can pool their investments into a single entity, referred to as a Commodity Pool, that allows them more leverage and buying power. These commodity pools are regulated by the NFA, and much like a mutual fund, brokerages can create and manage more than one commodity pool – so it’s almost impossible for the average person to know how many options are available. A quick search on the letter “A” on the NFA’s site revealed 4,821 commodity pools alone (see NFA results).
As with everything we write about at Futures Knowledge, we highly encourage you to research as much as possible before you venture into trading. If you’re like me, you may think initially that letting someone else manage your money is the best route to go – but if they’re so great – why are they still working rather than coasting on their own investments? Trust us – there are lot’s of benefits to brokerages – you just need to make sure to pick the one that’s right for you!
