Managed futures can be a profitable endeavor

Article Written By: Ashkar George

Managed Futures, which is a type of alternative investment, has become highly popular because of the benefits. It effectively increases the overall portfolio profits and simultaneously reduces the risk. The best thing about this future trading option is that the strategies allow the investors to involve both the long and short positions in futures contracts. This is not the case with mutual funds.

Besides, the investors are at an advantage while indulging in futures contracts in the global commodity, interest rate, equity, and currency markets. Offering long leverage in the world of futures, the managed futures ensure versatility that is highly important in trading. However, while you are fascinated with the advantages, you need to also be prepared for the disadvantages.

It is advisable to study the benefits and risks involved in trading futures. You will know that there are money managers, who are also known as Commodity Trading Advisors, who are entitled to manage funds on behalf of their customers. The markets involve food, raw materials, currencies, interest rate, equity, metal, energy and agricultural markets amongst others.

Empirical indication indicates that using managed futures as a means of diversification or speculation implies potentially improved risk-adjusted rewards for any investment portfolio. Relationship amongst stocks and commodities is almost nil, so commodity futures have often underwent positive performance during times when the US stock market was anemic. Enhanced knowledge of the benefits of managed futures hastened in a more than a tripling of funds under management from $37.9 billion in 2000 to $213 billion in Q4 2009 (Source: Barclay Group, LTD). Numerous forecasters agree that expanding into futures improves total performance of portfolios, principally if it is in the hands of an qualified specialist.

Insignificant or negative association leads to increase risk-versus-reward ratios. Diversification affords long-run return when one allocates a section of their funds to a reduced amount of negatively linked markets with comparable potentials for return. Managed futures exemplify potential hedges against such factors as inflation risk and business cycle changes which may unfavorably affect a absolute stock/bond portfolio.

Percentage-based costs denote CTAs mainly target consistent returns. Commodity Trading Advisors (CTAs) typically have percentage-based gains as their major source of income. Since incentive fees mean CTAs earn more money when you do, they have incentives to get as much return as viable for their investors.

Commodity portfolios make diversification easy. CTAs repeatedly target many markets using numerous guidelines, which reduces your volatility risk. Not every investor has the capacity to look at a computer screen all day for this single objective. Managed futures provide every investor the option to diversify by means of professional managers.

Versatility means not being a bull or a bear. Managed futures programs are not the equivalent as mutual funds: CTAs are not bound to only buying. They can buy and sell futures, write or purchase options, and speculate in bullish or bearish markets.

The prospect for global market exposure is basic. By their very nature, commodities are markets reliant upon worldwide factors. Furthermore, foreign exchange and index futures permit for global diversification not including the need for a microscope on several thousand foreign stocks and bonds.

You have the power to choose. There are many CTAs out there and they all covet your business. That not only means that you can be selective about risks and rewards, but also about capital preconditions and fees/costs. You have choices so find what works for you.

CTAs have record. The managed futures business has existed for several decades and the most consistent CTAs are the ones who have a long-term track record.

About the Author

George Ashkar - Find more information on Futures Trading and Managed Futures

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