What Are Managed Futures?
Friday, August 22nd, 2008Managed futures are futures positions entered into by professional money managers, also known as commodity trading advisors, on behalf of private investors. Managers will invest in energy, agriculture and currency markets (among other things) using futures contracts and will determine their positions based on an expected profit potential.
A managed futures contract is simply a financial contract obligating a buyer to purchase an asset (or a seller to sell an asset), such as a physical commodity or say a financial instrument, at a pre-determined future date and set price. Futures contracts will detail the quality and the quantity of the underlying asset and will be standardized to facilitate trading on a futures exchange market.
The potential benefits of a managed future are that the investments can help diversify your portfolio and, under some conditions, minimize the risk. For example, if you are investing in currencies abroad may mitigate some domestic risk. Managed futures can also help the individual to profit or at the minimum to minimize risk during periods of slower economic growth.
It is important to remember there can be potential downside in that futures investments are not guaranteed and they may be very volatile. There can also be the possibility of human error due to a manager (human) being involved. In other words, if the commodity-trading advisor makes an error it can definitely cost the investor a bundle of money. However, on the other side it could make the investor a bundle as well. I do not think I would want to take that chance though.
Finally, there can be some suitability issues as well. A minimum net worth of $150,000 (not counting your home and other items) can be necessary for an investment. There could also be some minimum income requirements as well.