Managed Futures Account

What Is a Managed Futures Account?

A managed futures account is a type of alternative investment vehicle. It is comparable in structure to a mutual fund, then again, actually it centers around futures contracts and derivative products.

In the United States, suppliers of managed futures accounts are regulated by the Commodity Futures Trading Commission (CFTC) as well as the National Futures Association (NFA).

Understanding Managed Futures Accounts

Managed futures accounts are investment vehicles that hold positions in derivatives, like commodity futures, stock options, and interest rate swaps. Dissimilar to more mainstream investment funds, managed futures accounts are permitted to involve leverage in their transactions and can likewise take both long and short situations in the securities they trade.

As a result of this additional level of complexity, managed futures accounts are managed by specialized investment managers called Commodity Trading Advisors (CTAs). These experts hold special assignments which approve them to trade in derivative securities. Despite the fact that CTAs regularly trade for the benefit of individual clients, other investment managers — known as Commodity Pool Operators (CPOs) — invest in derivatives for a large group, or "pool," of investors.

Advocates of managed futures accounts contend that they can reduce portfolio volatility and offer greater capital effectiveness due to the leverage that they permit. Additionally, on the grounds that managed futures accounts can take on both long and short positions, they can empower investors to generate profits in both bull and bear markets. Finally, derivative investments can give high levels of diversification through exposure to market sectors, like commodities, currencies, and other financial instruments.

Naysayers, then again, refer to the relative lack of long-term performance data on managed futures accounts and the relatively high fees that these accounts frequently involve.

1949

The date that the main publicly managed futures fund, Futures, Inc., was begun.

Benefits and Disadvantages of Managed Futures Accounts

Managed futures accounts are habitually utilized by large institutions to expand, diminishing the risk profile and volatility of their portfolios. They have a low correlation with additional traditional assets, implying that a managed futures account is probably not going to be impacted by a downturn in the equities or bond markets.

Furthermore, a managed futures fund can take both long and short positions, allowing them to create gains whether the market is rising or falling.

Be that as it may, there are a few downsides. Managed futures accounts are more speculative, implying that they have greater risks than investing in an ordinary mutual fund. Since performance is self-reported, the distributed numbers for managed funds might be biased. They likewise will quite often have higher fees, like the fee structure for the hedge fund industry.

Managed futures accounts have higher fees than retail funds. There are two fees to keep as a main priority. The first is the management fee, ordinarily going up to around 3% of an account's total assets. The second is the "performance fee," where the CTA keeps a share of the profit gains. This is like the hedge fund industry's "2 and 20" fee structure.

The most effective method to Invest in a Managed Futures Account

While managed futures accounts are primarily geared to institutional investors, it is additionally feasible for ordinary investors to access them. The simplest route for retail investors is through a mutual fund or ETF that invests in managed futures accounts.

These are like different sorts of funds that invest in a basket of securities. This allows ordinary investors to get a diversified assortment of various accounts easily. Likewise with other mutual funds, it is important to compare their expense ratios and performance history to ensure that you are investing your money astutely.

The fee structure for a run of the mill managed futures account is fundamentally higher than most retail-situated investment vehicles.

Special Considerations

Both CTAs and CPOs are required to register with the CFTC before accepting clients' funds. Moreover, they must pass broad FBI personal investigations and file continuous disclosure archives as well as annual evaluated financial statements. These financial disclosures are then evaluated by the NFA, the national self-regulatory organization (SRO) of the U.S. derivatives industry.

Managed futures accounts have seen increased institutional use in recent years. In the main quarter of 2021, total funds managed by the CTA industry were reported at $340 billion, as per figures distributed by Barclay Hedge Fund.

Universally, exaggerating just the way that large the derivative markets have become is troublesome. As per data from the Bank for International Settlements (BIS), the total notional value of derivative contracts worldwide is more than $582 trillion, or north of six times the whole world's gross domestic product (GDP).

Considering that, it is not really surprising that a developing number of investors are seeking after investment opportunities inside the derivative marketplace.

Highlights

• Managed futures accounts have a low correlation with additional traditional assets, making them alluring wellsprings of diversification.
• Such accounts are regulated by the CFTC and NFA, and their investment managers face extra oversight.
• Managed futures accounts are focused on institutional investors, yet retail investors can invest in them through mutual funds.
• The demand for managed futures accounts has filled in recent years, with assets under management (AUM) drawing nearer $340 billion starting around 2021.
• A managed futures account is a type of investment fund that holds futures, options, and derivatives.

FAQ

What Is the Difference Between Managed Futures and Hedge Funds?

Hedge funds trade in a broad assortment of securities, going from stocks and bonds to real estate and derivatives. A managed futures account just trades in return cleared futures, options, and forward markets.

What Is Notional Funding?

Notional funding is a means of utilizing the value of a managed futures account. In the event that a CTA requires a base investment of $100,000 for a managed futures account, an investor with just $50,000 can leverage their cash to meet the base. This expands the investor's risk, yet additionally builds their possible returns.

What Are Common Managed Futures Strategies?

Some CTAs look to take a market-neutral strategy, with matching long and short situations inside a specific industry. This strategy can generate returns from both rising and falling markets. Another strategy is trend trading, utilizing different market signs and indicators to foresee the overall momentum of the futures market.