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Managed Futures Account Definition

What Is a Managed Futures Account?

A managed futures account is a kind of alternative investment car. It’s related in construction to a mutual fund, besides that it focuses on futures contracts and different derivative merchandise.

In the USA, suppliers of managed futures accounts are regulated by the Commodity Futures Trading Commission (CFTC) in addition to the National Futures Association (NFA).

Key Takeaways

  • A managed futures account is a kind of funding fund that holds by-product securities.
  • Such accounts are regulated by the CFTC and NFA, and its funding managers face further oversight.
  • The demand for managed futures accounts has grown in recent times, with belongings beneath administration (AUM) approaching $340 billion as of 2021.

Understanding Managed Futures Accounts

Managed futures accounts are funding automobiles that maintain positions in derivatives, corresponding to commodity futures, inventory choices, and interest rate swaps. Not like extra mainstream funding funds, managed futures accounts are permitted to make use of leverage of their transactions and may take each lengthy and brief positions within the securities they commerce.

Due to this added stage of complexity, managed futures accounts are managed by specialised funding managers referred to as Commodity Trading Advisors (CTAs). These professionals maintain particular designations which authorize them to commerce in by-product securities. Though CTAs sometimes commerce on behalf of particular person purchasers, different funding managers— often called Commodity Pool Operators (CPOs)—put money into derivatives on behalf of a giant group, or “pool,” of traders.

Particular Concerns

Each CTAs and CPOs are required to register with the CFTC earlier than accepting purchasers’ funds. Moreover, they have to cross intensive FBI background checks and file ongoing disclosure paperwork in addition to annual audited monetary statements. These monetary disclosures are then reviewed by the NFA, the nationwide self-regulatory organization (SRO) of the U.S. derivatives trade.

Proponents of managed futures accounts argue that they will scale back portfolio volatility and provide larger capital effectivity as a result of leverage that they allow. Furthermore, as a result of managed futures accounts can undertake each lengthy and brief positions, they will allow traders to generate income in each bull or bear markets. Lastly, by-product investments can present excessive ranges of diversification by means of publicity to market sectors, corresponding to commodities, currencies, and different monetary devices.

Detractors, alternatively, cite the relative lack of long-term efficiency knowledge on managed futures accounts and the comparatively excessive charges that these accounts typically entail. Usually, these charges are similar to these of the hedge fund trade, the place the “2 and 20” payment construction (a 2% asset administration payment mixed with a 20% efficiency payment) is commonplace.

Actual-World Instance of a Managed Futures Account

Managed futures accounts have seen elevated institutional use in recent times. Within the first quarter of 2021, complete funds managed by the CTA trade had been reported at $340 billion, in keeping with figures revealed by Barclay Hedge Fund.

Globally, it’s tough to overstate simply how massive the by-product markets have change into. In response to knowledge from the Bank for International Settlements (BIS), the full notional value of by-product contracts worldwide is over $582 trillion, or over six instances your complete world’s gross domestic product (GDP).

With that in thoughts, it’s hardly stunning {that a} rising variety of traders are pursuing funding alternatives inside the by-product market.

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