Managed Futures

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© 2018 by eFloorTrade, LLC. 

  • Chris Moore

Which Do You Prefer: Maximum Return or Minimizing Risk

If you're like many investors, you'd love to find an investment that participates in all of the upside steering clear of the downside. Unfortunately, that doesn't exist. The reality is that investment return is strongly correlated to the amount of risk taken. Two extreme examples of this are venture capitalists and CD investors. Venture capitalists can make a lot of money because they often have significant risk of loss of principal. In fact, many VC investments go bust, but it is the one or two homeruns that can make it all worthwhile. Investors that place money in a CD have little to no risk, and subsequently receive very little in return.


Keep Your Goals in Mind


Professionals and successful entrepreneurs often have specific, obtainable goals. Working backwards from those goals can lead to creating (and implementing) a road map to success. Many successful investors are often the same. One common goal of investors is to be able to retire comfortably. A comfortable retirement may be defined differently, but it usually has to do with financial security and the ability to maintain a certain lifestyle. Other common goals might include unforeseen medical expenses, college funding or building a legacy. Simply "beating the market" is rarely, if ever, a primary goal of investors.


Maximizing Return


Maximizing return may seem an obvious goal of any investor. It's obvious investors want to maximize their returns. In order to do so, however, requires the investor to take risk - maximum risk if you are truly looking to maximize return. The payoffs of such a strategy can be quite handsome, or totally devastating. Most people don't really try to maximize their returns. Instead, investing becomes a trade off between a need to grow assets and the ability (both financially and emotionally) to tolerate loss.


Investors often do a reasonable job of defining how much their portfolio needs to grow (i.e., average 7% per year will achieve the goal), yet they seldom define how much risk they are willing and able to accept should their investments move against them.


Managing Risk (Loss)


Investors that have a desire to manage risk of their investments are concerned about losing money. It is important to quantify, in dollar terms, how much you could realistically afford (both financially and emotionally) to lose if or when an investment turns sour. No one knows, with certainty, if a 10% correction in the market is a great buying opportunity or the first step to losing much more until well after the fact. Because you can't predict the market (nor can the experts), it is important you don't lose more than you are able or it may cause you to sell low as you seek immunity from additional losses.


A portfolio that has any component of "managing risk" should reasonably expect to under perform during bull markets. Unfortunately, that relative under performance can influence investors to forget about their primary goals, and focus on "beating the market" instead...or at least keep pace with the market. This temporary shift in focus can influence investors to take on more risk than they can handle.


You may dismiss the potential downside of an investment if your focus shifts from your personal goals to achieving performance similar to some benchmark. Because you are not considering the downside, the calculation of risk becomes skewed. You might underestimate the risk because you're simply not considering the downside...you're too focused on "beating the market."


Beating the Market


The media is often obsessed with market indices. How many times have you heard (or asked), "how did you do versus the market?" The constant chatter comparing a mutual fund, ETF, or managed account investment to an index (such as the S&P 500) can influence an investor to also compare the performance of their portfolio to the S&P 500., or some other index. Some brokerage firms make it simple to do that since many statements will illustrate your personal return for the period and also list a series of index returns. Performance that pleases an investor and is in line with their goals can become disappointing when comparing index returns in a bull market.


Just because you value the management of risk doesn't mean an investor can't "beat the market" over time, or that you will significantly "miss out." In fact, if risk is being managed well, you might greatly outperform the market during down markets. And that relative out performance in a down market can greatly enhance your long-term performance. Remember, it isn't necessarily about beating the market, but about reaching your personal goals.


At eFloorTrade, our goal is to pair investors with managers that deliver consistency, or superior risk-adjusted returns. If you like the idea of investing in absolute return strategies that have the ability to profit in bullish, bearish or neutral market environments, we should connect.


Call us to learn more about managed futures - (407)378-4775

View advisors HERE

IMPORTANT RISK DISCLOSURE

Futures trading is complex and carries the risk of substantial losses. It is not suitable for all investors. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns. The returns for trading systems listed throughout this website are hypothetical in that they represent returns in a model account. The model account rises or falls by the average single contract profit and loss achieved by clients trading actual money pursuant to the listed system’s trading signals on the appropriate dates (client fills), or if no actual client profit or loss available – by the hypothetical single contract profit and loss of trades generated by the system’s trading signals on that day in real time (real-time) less slippage, or if no real time profit or loss available – by the hypothetical single contract profit and loss of trades generated by running the system logic backwards on backadjusted data (backadjusted). Note that the Client Fill Trades are reported across all clients utilizing the platform, across multiple brokers, and are not based solely on the performance of accounts at this brokerage. The hypothetical model account begins with the initial capital level listed, and is reset to that amount each month. The percentage returns reflect inclusion of commissions, fees, slippage, and the cost of the system. The monthly cost of the system is subtracted from the net profit/loss prior to calculating the percentage return.

If and when a trading system has an open trade, the returns are marked to market on a daily basis, using the backadjusted data available on the day the computer backtest was performed for backtested trades, and the closing price of the then front month contract for real time and client fill trades. For a trade which spans months, therefore, the gain or loss for the month ending with an open trade is the marked to market gain or loss (the month end price minus the entry price, and vice versa for short trades).

The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor’s participation (whether or not all signals are taken) in the specified system and money management techniques. Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this website.

Please read carefully the CFTC required disclaimer regarding hypothetical results below. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

The information contained in the reports within this site is provided with the objective of “standardizing” trading systems account performance and is intended for informational purposes only. It should not be viewed as a solicitation for the referenced system or vendor. While the information and statistics within this website are believed to be complete and accurate, we cannot guarantee their completeness or accuracy. As past performance does not guarantee future results, these results may have no bearing on, and may not be indicative of, any individual returns realized through participation in this or any other investment.

The statistics on this page are calculated via the combination of three hypothetical data sets: 1. Backtested, 2. Tracked, and where available 3. Live.

Backtested performance is calculated by running a trading system backwards in time, and seeing what trades would have been done in the past when applied to backadjusted data. Tracked performance is calculated by running the trading system forwards on data each and every day, and logging the trades as they happen in real time day after day. Live performance is calculated by running the trading system on live tick data for actual clients and tracking the actual buy and sell prices those clients trading the system receive in their account.

We use Live results to calculate monthly returns for any month in which clients were trading for the entire month, Tracked fills for those months in which there are no client fills for the entire month, and computer generated fills for those months occurring before we loaded the system onto our trade servers. The results are hypothetical in that they represent returns in a model account. The model account rises or falls by the single contract profit and loss achieved by the system in whichever data set is available. The hypothetical model account begins with the Suggested Capital listed, and is reset to that amount each month. The percentage returns reflect inclusion of commissions, fees, slippage, and the cost of the system. The commission, slippage, fees, and monthly system costs are subtracted from the net profit/loss prior to calculating the percentage return.

Please note that the method of resetting the model account to the initial value at the start of each month creates a track record which is representative of the simple returns for each time period, but that it does not, by definition, show how returns would compound over time. Should an investor following said program trade a single contract indefinitely without also resetting their account to the initial capital amount each month, their performance will differ from the performance detailed herein.

eFloorTrade has no opinion whether an investment will provide similar performance in the future.