What are managed future accounts, and who are commodity trading advisors? Well, as more and more investors have become aware of the potential earnings of the commodity and futures markets, and have become comfortable with the concept of trading in futures and commodities, it was inevitable that managed futures would emerge as a way of facilitating or assisting such investors and giving them exposure to the potentials of these markets.
Essentially, how managed futures work is that one, or more usually, a number of investors give their assets to a commodity trading advisor to invest for them. The medium that the advisor will use to invest the fund is the global forward, futures and options markets. The investor will then pay the commodity trading advisor usually on a commission basis, for managing the investments.
The other main attraction that managed futures have had for established investors is the ability to diversify their portfolios. By investing in other markets, and also in non financial assets, the managed futures take on a different dynamic and reduce exposure to volatile stock and bond markets. They mean that investors are less reliant on the stock markets and less exposed to their movements.
Managed futures also allow investors to profit from markets and economic trends that it would be very difficult to capitalise on if you were limited to say the stock markets. Traditional stock investment requires you to find stocks that are likely to go up and then invest in them, selling them once they have increased in value. Futures markets allow you to take both long and short positions with equal ease which thus allows you to profit from any type of market and still make significant gains. This can be extremely important in times of economic down turn when stocks are decreasing in value.
What this also means is that to a large extend, futures markets are skill based. This refers to the fact that the returns you make on futures trading depend to a much higher degree on the individual skill of the investor. In a bull market, anyone can make money on shares. With futures, it all depends on the skill of the investor and for this reason, many have been rushing to get their futures investments professionally managed by commodity trading advisors.
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