Commodity pool operators have developed their own methods of putting funds together.

New trading strategies derived from combining artificial intelligence, historical simulations and new applications of tested theory will also be incorporated into the markets. Mount Lucas Management Co. can test an algorithm using historical data going back 30 years. One Chicago proprietary trading firm uses 15 years of tick-by-tick trading data on key markets which are screened by artificial intelligence to discern price patterns over any possible time frame. These historical patterns are then compared against live trading data. Richmond Financial Resources, Richmond, Texas, has also developed an exclusively automated trading operation. Read more »

Posted: February 4th, 2008 under Future Fund, Futures Market, Managed Futures.
Comments: 6

Most managed futures funds have a CPO, an institutional fund manager, who in setting up the fund appoints either one or a selection of CTAs who actually advise on the management of the money. Some funds have a trading manager as well, a specialist who advises the CPO on the selection of the CTAs. The number of CTAs used within a fund differs, largely depending on fashion. Multi- adviser funds were considered, for a long while, to achieve diversification of risk and lower volatility. Now the fashion is coming back to single adviser funds again as mathematical systems of trading become more complex. CPOs are also responsible for organising the back-office administration of a fund, the trustee and custodian functions, the marketing and sales of the fund and so on. While this is always extremely important in the working of a fund, it is particularly important in managed futures funds where supervision of margin or premium is essential to controlling a fund’s exposure to risk. Read more »

Posted: February 4th, 2008 under Future Broker, Future Fund, Managed Futures.
Comments: 4

It is, perhaps, because the commodity markets are so volatile and so erratic in their movements that they have attracted so many traders armed with higher degrees in advanced mathematics and technically complicated systems who are determined to draw a semblance of order from the chaos.

All CTAs trade using some system or another. Some employ superstition— trading on an equation computed on their mother’s birth date or some other equally unscientific approach; some apply pure mathematics; some a wealth of historical research; others a gut reaction to what is happening in the markets; but all use some sort of consistency in their approach to achieve their results.

The appeal of making money in managed futures is the basic instinct that draws anyone who wants to turn a modest cash sum into a fortune, and do it overnight. However, the ability to manage money—and risk—in the futures markets requires genuine skill and is not common. Most traders lose on their trades more often than they gain. Read more »

Posted: February 4th, 2008 under Futures Contracts, Futures Market, Futures Prices, Futures Trader, Managed Futures.
Comments: 5

One of the many obstacles placed in the way of institutions in Europe that are keen to use futures and options in their institutional portfolios has been that the trustees responsible for those portfolios would not know how to fulfill their responsibilities in those funds and that performance measurement of such portfolios would be extremely difficult.

In an effort to combat this problem in the UK at least, Liffe and LTOM (the London Traded Options Market, which is now part of Liffe) published their final recommendations for the reporting and performance measurement of financial futures and options in investment portfolios, early in 1992.

These recommendations aimed to lay down a standard for the treatment of futures and options which:

• can be adopted by all parties in the investment industry; and
• demonstrates to pension fund trustees the effect of futures and options on their portfolio performance simply and without further complicating portfolio variations.

Read more »

Posted: February 4th, 2008 under Futures Contracts, Short Futures.
Comments: 5

Mitchell is certain that good performance over the longer term is the only way to tell luck from skill, but if that type of data is not available, he has the following suggestions for evaluating shorter trader history:

• Using qualitative information to eliminate some lucky traders.
• Excluding all biased data including simulated track records and extracted trades.
• Basing the evaluation on a statistically significant number of events, rather than a statistically significant number of trades.

Read more »

Posted: February 4th, 2008 under Managed Futures.
Comments: 4

Mitchell cites a series of examples to support his views:

1983 was a very difficult year for most traders. One trader had an outstanding year mainly because he sold soya beans short, right at the top of a big bull market. He made huge profits in the subsequent price decline. His 50 per cent year was the result, not of his skill per se, but of one event—having picked the top of a major bull market. He never repeated this first-class performance and subsequently faded away.

Favourable Market Selection

A trend-following trading advisor aggressively trades the 10 year Japanese bond. Our studies of this market show that for the last five years, it has been very easy to trade using trend-following techniques. Read more »

Posted: February 4th, 2008 under Futures Market, Managed Futures.
Comments: 4

1) Sponsor: the company or individual responsible for launching the fund for example, for a limited partnership, the sponsor is the General Partner

2) Trading manager or pool operator: this is the company or individual responsible for the development of the fund both initially and on an ongoing basis

3) Domicile: the legal home of the fund

4) Clearing broker: the main clearing broker for the fund. Some funds use
more than one broker; in such a case, the entry will read ‘various’ Read more »

Posted: February 4th, 2008 under Future Fund, Future Trading, Futures Trader, Managed Futures.
Comments: 3