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Managed Futures

Managed Futures are alternative investments which rely on professional investment managers known as Commodity Trading Advisors (CTAs), who  specialize in trading exchange-traded futures contracts and options both long and short in markets across the world.

Potential Benefits of Managed Futures

REDUCED OVERALL PORTFOLIO RISK

ENHANCED OVERALL PORTFOLIO RETURNS

TAX

ADVANTAGES

INVESTMENT SECURITY

TRANSPARENCY & LIQUIDITY

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Why Choose Managed Futures Investments?

DIVERSITY

Futures-based investments are often viewed as higher return / higher risk.  We look for managers that are non-correlated to traditional markets with superior risk-adjusted returns.

PROFESSIONALLY MANAGED

Take comfort in knowing your investments are being managed and traded by a professionally licensed advisor that will provide you the accountability your investment deserves.

 

REDUCED OVERALL PORTFOLIO RISK

Managed Futures offer the potential for lower volatility in a balanced investment portfolio, due, in part, to their diversity.  Their ability to generate absolute returns regardless of the movement of stocks and other investment vehicles is often appealing to investors.  Historically, Managed Futures have virtually no long-term correlation with traditional investments, such as stocks and bonds.  No Managed Futures program comes without risk and any investment may be subject to substantial loss.

ENHANCED OVERALL PORTFOLIO RETURNS

An optimum portfolio mix can offer diversity and potentially reduce volatility while increasing portfolio gains.  A balanced investment portfolio can offer more effective performance.  The addition of Managed Futures to traditional investments can provide the potential for higher returns with lower risk.  Commodity Trading Advisors offer unique investment strategies and past performance is not indicative of future results, therefore, Managed Futures offer no guarantee of future profit.

TAX ADVANTAGES

Profits earned from Managed Futures accounts are taxed as if they are comprised of 60% long-term capital gains and 40% short-term capital gains.  This can be advantageous because long-term capital gains are subject to a maximum federal income tax of just 15%, while short-term capital gains may be taxed at a rate as high as 35%.

INVESTMENT SECURITY

Commodity Trading Advisors ("CTA") invest in highly regulated global markets.  All U.S. based futures investments are regulated by the Commodity Futures Trading Commission ("CFTC") and National Futures Association ("NFA").  With few exceptions, all CTAs and other professionals and firms doing futures and commodities business are required to register with both the CFTC and NFA.

The CFTC has the power to bring criminal charges against those who engage in unlawful conduct or abusive practices.  The NFA, in addition to its monitoring function, develops rules, programs and services that help safeguard market integrity.

TRANSPARENCY & LIQUIDITY

Managed Futures are one of the most transparent and liquid alternative investments in the world.  Commodity Trading Advisors are required to provide clients with daily statements that include detailed position summaries (marked-to-market) and complete disclosure information.  Since exchange-listed futures contracts are settled on a daily basis, investors can easily track and monitor account performance.  Investors maintain control of accounts and can easily make changes - increase/decrease trading levels, start/stop managers, and add/withdraw funds - as necessary.

 
 
 
 

FREQUENTLY ASKED QUESTIONS

WHO SHOULD USE MANAGED FUTURES?

Managed Futures offer a wide array of potential benefits.

  • Broad Diversification Opportunities

  • Reduced Overall Portfolio Risk

  • Enhance Overall Portfolio Returns

  • Profit Potential During All Economic Environments

  • Tax Advantages

  • Investment Security

  • Transparency & Liquidity

If you are looking for new opportunities, we should talk.

ARE MANAGED FUTURES APPROPRIATE FOR SHORT-TERM INVESTMENT?

Generally speaking, we believe investors should approach Managed Futures investments with a one year minimum time horizon.  Managed Futures offer excellent liquidity terms, however.  Should the need arise, most strategies can be turned to cash quickly.

WHO REGULATES COMMODITY TRADING ADVISORS?

Commodity Trading Advisors are regulated by government entities and an industry-wide self-regulatory organization ("SRO").  The Commodity Futures Trading Commission ("CFTC") is the government entity responsible for regulating commodity trading.  The National Futures Association ("NFA") is the SRO responsible for regulating futures markets.

WHAT IS A DISCLOSURE DOCUMENT?

A CTA's disclosure document is meant to provide prospective investors with the information needed to make an informed investment decision.  Among other things, disclosure documents generally provide a background on the firm and it's principal(s), trading strategy descriptions, risk disclosures, historical performance, and fees to be assessed. 

WHERE IS THE MONEY DEPOSITED WHEN A MANAGED FUTURES ACCOUNT IS OPENED?

Unlike pooled investments, investments in Managed Futures accounts are segregated.  A client opens an account in his/her name and deposits funds into their segregated futures account.  The manager is then granted limited power of attorney to trade on behalf of the client.  Third-party additions/withdrawals are not permissible, therefore, funds must be transferred to/from an account in the name(s) of the account holder(s).

HOW MUCH ARE MANAGEMENT AND INCENTIVE (PERFORMANCE) FEES IN THIS TYPE OF INVESTMENT?

Most CTAs charge a 2% management fee and 20% performance fee.  Management fees are generally charged 1/12 of 2% per month.  Incentive fees are also billed monthly assuming the advisor has exceeded his/her previous high water mark.  For a detailed description of fees to be assessed, be sure to review the CTA's disclosure document or consult with us.

HOW ARE MANAGEMENT AND INCENTIVE FEES DEDUCTED?

Management and incentive fees are deducted directly from the investor's trading account.  All fees assessed to the investor's account are reported daily and/or monthly carrying broker statements.  

WHAT DOES HIGH-WATER MARK MEAN?

A high-water mark is the highest peak in value that an account has reached.  The term is often used in the context of a CTA's compensation, which is performance based.  A high-water mark ensures the manager does not get paid for poor performance.  If the manager loses money over a period, he must get back above the high-water mark before receiving additional incentive fees.

WHAT IS THE MINIMUM INVESTMENT WITH A COMMODITY TRADING ADVISOR?

Minimum investment varies by CTA and strategy.

WHAT IS NOTIONAL FUNDING?

Notional funding is a concept unique to the Managed Futures industry, whereby an investor is able to leverage their cash investment by taking on additional risk for higher expected returns.  When someone decides to "notionally fund" their managed futures investment, it means they are only investing a portion of the minimum investment required by a CTA.  For example, assume as CTA's minimum investment is $100,000 (nominal account size), but they allow the account to be notionally funded with only $25,000.  In this instance, it is the investor's decision on whether they would like to notionally fund the account with $25,000 cash, fully fund the account with $100,000, or fund somewhere in between $25,000 - $100,000.  Investors are often interested in using notional funding because it capitalizes on the free cost of leverage.

HOW IS PERFORMANCE REPORTED ON MANAGED FUTURES ACCOUNTS?

CTAs are required to report performance net of all fees and expenses.

ARE THERE ANY LOCKK-UPS?

CTAs generally have liberal redemption policies.  Some offer daily liquidity.  Unlike what took place in some other hedge fund strategies, CTAs generally did not impose either gates or lockups during the financial crisis of 2008-2009.  With separately managed accounts, investors can terminate a trading manager's power of attorney and liquidate positions.  CTAs cannot restrict customers from making withdrawals from their managed accounts.

WILL I BE ABLE TO SEE THE TRADES AND KNOW WHAT THE CTA IS DOING?

Yes!  Unlike other alternative investments, Managed Futures offer excellent transparency.  You will receive daily account statements detailing all trades and net asset value ("NAV") marked-to-market.

CAN I INVEST FUNDS FROM MY INDIVIDUAL RETIREMENT ACCOUNT (IRA) IN A MANAGED FUTURES ACCOUNT?

Absolutely!  Contrary to common belief, investing in Managed Futures and CTA strategies through an IRA account is actually quite simple.  Since many financial institutions will not allow you to invest in futures strategies, the first step is to "roll over" some of the funds in your IRA account into a "self-directed" IRA account, held by a custodian who accepts futures accounts.  A self-directed IRA account is no different than a regular IRA account; the only difference is that you are "directing" the placement of your funds.  "Self-directed" IRAs allow you to invest in Managed Futures, while still maintaining tax deferred growth.  

WHAT ARE THE TAX BENEFITS OF MANAGED FUTURES ACCOUNTS?

Profits earned from Managed Futures accounts are taxed as if they are comprised of 60% long-term capital gains and 40% short-term capital gains.  This can be advantageous because long-term capital gains are subject to a maximum federal income tax of just 15%, while short-term capital gains may be taxed at a rate as high as 35%.

Many other investments, including stock, must be held for at least 12 months before being taxed at the long-term capital gains rate.  Managed Futures accounts, however, do not require a specific length of investment to qualify for the long-term capital gains tax rate.

Disclaimer:

Trading futures or options on futures, investing in managed futures and other alternative investments are complex and carry risk of substantial losses.  As such, they are not suitable for all investors.  All information, publications, and reports, including this specific material, used and distributed by eFloorTrade, LLC shall be construed as a solicitation.  eFloorTrade, LLC does not distribute research reports, employ research analysts, or maintain a research department as defined by CFTC Regulation 1.71.  This website contains information obtained from sources believed to be reliable, but such information has not been independently verified and its accuracy is not guaranteed by eFloorTrade, LLC.  Past performance is not necessarily indicative of future results.  Any mention of performance in any context whether actual or hypothetical is no guarantee of future results.  Email sent through the internet is not secure.  Email is not private and is subject to review by the Firm, its officers, agents, employees, and regulators.  Your Privacy is important - Privacy Policy 2019.

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