If you are exploring an investment in futures for the first time, you might not know all the alternatives available to you.
Trading solo can be profitable but is infinitely more dangerous than relying on an industry pro. Commodity markets, like mutual funds, also offer passive approaches to investing. Managed futures are like mutual funds in that there are numerous choices available.
So what exactly is a "managed future"? Using global futures and options, profession money managers trade on a discretionary basis called managed futures. Technical analysis and a more fundamental approach tend to be the two primary types of trading techniques utilized by fund managers. Managed futures are showing up in more and more corporate and institutional investor programs and are less of an "alternative investment" than once considered.
Many investors find managed futures can reduce volatility in their overall investment portfolio. The commodity index has numerous interesting facts about commodities volatility.
There are significant number of studies that indicate that managed futures have almost no correlation with stock prices. This is crucial because correlated investments experience gains and losses together which means that only uncorrelated investments can actually properly diversify a portfolio. One of the key tenets of Modern Portfolio Theory, as developed by the Nobel Prize economist Dr. Harry M. Markowitz, is that more efficient investment portfolios can be created by diversifying among asset categories with low to negative correlations.
The difference in value between a peak performance and the following low is a way to measure risk often called a "drawdown" within the industry. Pricing trends can be capitalized on by trading advisors. Trading advisors can even use strategies employing options on futures contracts that allow for profit potential in flat or neutral markets Managed futures also can be great performers on their own.
Investing in managed futures is not for everyone. Make sure you completely understand both the risk and rewards.
Investors should consider numerous factors before investing. For instance, a CTA with an average return of thirty percent could appeal more than a 10% annual program. Although, this might be an incomplete evaluation if the managed future incorporates significantly different dispersion of losses-that is, a futures program may have more volatility in terms of returns throughout the year, while another sees a more steady rate of return. The CTA with a 30 percent gain may have exceptionally high drawdowns and losing periods of say 30%, while the CTA with 10 percent annual returns may average drawdowns of only 2 percent.
