How Do Managed Futures Work?
Managed futures offer investors the opportunity to invest in the global futures markets through a Commodity Trading Advisors (CTA). CTAs manage client assets on a discretionary basis using global futures markets as an investment medium with a variety of strategies and trading approaches.
Managed Futures Account
A Managed Futures account, also known as a Single Managed Account (SMA) is an individual brokerage account opened in the customer’s name at a Futures Commission Merchant (FCM) through your broker.
Limited Power of Attorney is assigned to the selected CTA, who makes all of the trading decisions in a customer account. This Power of Attorney may be withdrawn at any time.Customers have full transparency and are able to view their accounts in real-time through an online portal. Investors may be able to diversify their portfolio by opening individual SMAs with a number of different CTAs.
Funding Requirements
Most CTAs require a minimum investment level, which typically falls between $25,000 and $5,000,000. These amounts are based on a CTA’s trading strategy, risk management, past performance and other considerations.
Many CTAs offer clients the option of notional funding, which allows investors to leverage their managed futures accounts. The notionally funded amount is as a good faith deposit for the full value of the account. With notational funding, all gains and losses are multiplied proportional to the level of funding provided.
For example, a $100,000 account that is notionally funded at 50%, requires an investment of $50,000. The account would be traded as if it were fully funded at the $100,000 level. If the account sees a 10% return, the investor thus receives a $10,000 profit, equal to 20% of the actual funding provided. If, however, the account experiences a loss of 10%, the account is debited $10,000, amounting to a 20 loss of funds.
Disclosure Documents
A CTA’s disclosure documents, commonly called D-Docs, provide information about the CTA’s specific program, trading metrology, performance history and fees structure. An investor should carefully study a CTA’s disclosure documents prior to making a decision to invest with the CTA.
Managed Futures Account
A Managed Futures account, also known as a Single Managed Account (SMA) is an individual brokerage account opened in the customer’s name at a Futures Commission Merchant (FCM) through your broker.
Limited Power of Attorney is assigned to the selected CTA, who makes all of the trading decisions in a customer account. This Power of Attorney may be withdrawn at any time.Customers have full transparency and are able to view their accounts in real-time through an online portal. Investors may be able to diversify their portfolio by opening individual SMAs with a number of different CTAs.
Funding Requirements
Most CTAs require a minimum investment level, which typically falls between $25,000 and $5,000,000. These amounts are based on a CTA’s trading strategy, risk management, past performance and other considerations.
Many CTAs offer clients the option of notional funding, which allows investors to leverage their managed futures accounts. The notionally funded amount is as a good faith deposit for the full value of the account. With notational funding, all gains and losses are multiplied proportional to the level of funding provided.
For example, a $100,000 account that is notionally funded at 50%, requires an investment of $50,000. The account would be traded as if it were fully funded at the $100,000 level. If the account sees a 10% return, the investor thus receives a $10,000 profit, equal to 20% of the actual funding provided. If, however, the account experiences a loss of 10%, the account is debited $10,000, amounting to a 20 loss of funds.
Disclosure Documents
A CTA’s disclosure documents, commonly called D-Docs, provide information about the CTA’s specific program, trading metrology, performance history and fees structure. An investor should carefully study a CTA’s disclosure documents prior to making a decision to invest with the CTA.
ECG Futures is a registered ‘dba’ of Essence Capital Group, Inc
Registered Independent Introducing Broker | Registered CFTC | NFA Member | Since 2007
Past performance is not necessarily indicative of future results. Trading commodity futures and options involves substantial risk of loss and is not suitable for all investors.
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