Managed Futures

Many investors look for alternative opportunities when investing in order to broaden and diversify their portfolio. Investors will look towards investing in hedge funds and managed futures to gain experience with different variations of the markets. Information about managed futures seems scarce because they have only been around for about 30 years. Managed futures were first created by (CTAs), or “commodity trading advisors.” Advisors in the field of commodities are required by law to be registered with the federal government. In order to manage money for the public arena, CTAs have to undergo an extensive background search. This is to ensure safety and security with those who are looking to invest in managed futures.

Combining alternative investments with traditional investments is a way to lower portfolio risks. The ever popular saying “don’t keep all your eggs in one basket” is a very true statement in the world of stock trading and investments. Investors who invested in managed futures during the years 1993 and 2002 earned lower return rates than those who didn’t Managed futures produce a compounding interest that is paid out annually. During 1993 and 2002, managed futures paid out roughly 6.9% to their investors. During those same years, traditional stocks where paying close to 9.5%. However, managed futures have shown a substantial lower risk when compared with traditional stocks.

Managed futures have shown a wide range of diversification within portfolios. The reason behind this can be found with the correlations between managed futures and asset groups. A negative correlation between these two will offset risks at lower rates. Managed futures can build an impressive portfolio that displays a sense of secure decision making. Before getting into the market of managed futures, research must be done on CTA’s. Since the commodity trading advisors manage all the money there must be a high level of trust. Researching any CTA company can be done online. There are testimonials online that display whether or not particular CTA companies are trustworthy and professional. Different CTA’s often use different trading programs. It’s important to familiarize yourself with what type of trading program being used. The two main types of trading programs that CTAs use are called “trade followers” and “options writers.” One of these programs will best meet the goals of the investor depending on which way they want to invest. The difference between these two trading programs is fairly simple. Trade followers rely on proprietary trading systems while options writers spread their horizon over a variety of different markets.

Trading systems with both programs still use the fundamental tools that traditional stock traders use such as signals and indicators. Incorporating these tools is important for both long term and short term investment strategies. Because of the variety of systems and programs made available in managed futures, the investors can potentially see higher return rates. A wide range of different markets produce higher rates of success but they also can produce higher rates of failure. Well informed investors will diversify their portfolios using managed futures when they have obtained enough experience with trading and investing in stocks. Managed futures are recommended for experienced investors. New investors can still learn about managed futures and it’s important to be well armed and informed before entering into the world of diversification. Do your homework on CTAs and find a reputable firm that has enough experience and professionalism that you can depend on. Talk to advisors and build a strategy that is realistic. Talk to commodity trading advisors and see what they can do to help you meet your goals. Always shop around and compare firms so that you can make an educated decision about your future with investing.

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