Managed Futures Definition
- Futures are standardized contracts for the future delivery a wide range of commodity and financial products. Futures categories includes agriculture products, energy products, base and precious metals, currencies, government bonds and stock market indexes. The nature of futures trading allows trades to be entered to profit on value changes either up or down. Futures trading allows profits in downtrends when it is difficult for stock or bond investors to maintain their portfolio values.
- A managed futures account is managed by a Commodity Trading Advisor -- CTA. A CTA must be registered with the Commodity Futures Trading Commission -- CFTC -- which performs a background check on all commodity trading advisors. CTAs also have their financial statements reviewed every year by the National Futures Association. The CTA of a managed futures account makes all of the futures trading decision for the account. The profits or losses of a managed futures account are due to the skills and system of the chosen CTA.
- For an investor, a managed futures account is a private account and the investor's money is not mingled with funds from other investors using the particular CTA. An account is set up with a registered commodities broker and the CTA is given trading privileges for the account. The investor, account owner, has full access to see the trades and positions in her managed futures account. Each CTA sets the minimum for the account size he will take and the investment amount typically starts at $50,000 or more.
- A commodity trading advisor should provide a potential investor with performance results for the time the CTA has been in business. The results should be analyzed for the maximum percentage of draw down and time to recover the losses as well as average annual returns. Investors should also compare the fees charged by different CTAs. Managed futures charges are often an annual fee of one to two percent of the account balance plus 15 to 30 percent of net profits.