Embarking on a marketing effort with the major European financial centers as the initial focus is, however, extremely arduous for new, particularly non-European, groups.

Given appropriate lists of contacts, one-on-one meetings can be arranged relatively straightforwardly, but their effectiveness is dependent on a series ofcriteria beyond the chemistry of the meeting itself.

Press relations, actively undertaken, will serve both to boost familiarity of a fund management group and, moreover, can prove a valuable information source to the group as well as from it.

Over the past few years, the European press has increasingly reacted positively—with certain exceptions—to the derivatives industry as a whole and to managed derivatives in particular. Read more »

Posted: March 17th, 2008 under Uncategorized.
Comments: 4

The granddaddy of commodity indexes is the KR-CRB Futures Price Index. The initials stand for Knight-Ridder Commodity Research Bureau. Developed in 1957, The KR-CRB Index was designed to monitor the broad-based price movement of the commodity market as a whole. It answers an important question, i.e., “Are commodity prices going up or down at any given point in time?” It is made up of futures contracts on the following commodities:

• Meats—cattle, hogs, pork bellies
• Metals—gold, silver, platinum
• Imports—coffee, cocoa, sugar
• Industrials—crude oil, cotton, copper, unleaded gas, heating oil, lumber
• Grains—corn, wheat, soybeans, soybean oil, soybean meal
• Miscellaneous—orange juice

None of the financial markets were included since they did not exist in the ’50s. Since it does include physical commodities, which are so heavily influenced by inflation and deflation, bond traders love its inverse correlation with their market. Read more »

Posted: March 10th, 2008 under Futures Contracts, Futures Prices.
Comments: 4

A common complaint of anyone who buys insurance is that it wasn’t needed—the house never burned down, the car never was stolen, etc. But few of us want to assume the risk that nothing unpleasant will ever happen, so we go ahead and buy the insurance.

The same goes for the futures markets. Hedgers buy insurance from speculators. A premium is paid for that insurance, which is the economic raison d’etre of the futures market. We’ll continue this discussion and quantify the amount of premium hedgers pay a little later, when we review the various indexes available to you to evaluate your CTA’s trading performance.

It’s important to note that speculators do not create the price risk. This risk is there. It is real, whether there is a futures market in a particular commodity or not. As a matter of fact, price risk is substantially greater when there isn’t a formal market. Open auctions with competitive bidding fixes prices. All the information—fact or fiction—affecting the perceived value of a commodity is resolved as buyers and sellers bid. This is true for the stock and bond markets as well as the futures markets. Read more »

Posted: March 10th, 2008 under Futures Contracts, Futures Market.
Comments: 3

“My CTA is beating the world!” That naturally is our goal when we select and invest in a professional futures trader, be he our spouse’s favorite nephew or someone of the stature of George Soros.

In the securities market, measuring success appears to be reasonably easy. Most advisors evaluate their performance against the Dow Jones averages. Since beating the Dow has been the yardstick for trading success in the stock market just about from its first publication in 1884, let’s examine it briefly and then see if there are comparable indexes available for the futures markets. But first, we need to understand the composition of the Dow so we can evaluate futures indexes.

How the Dow Is Calculated

Originally, the Dow was computed as a simple average—total up the prices of the stocks included in the index and divide by the number of stocks. Naturally, this system gave more weight to the higher- priced stock. Therefore, a major advance in a low-priced stock is diluted by a modest loss in a high-priced issue. Read more »

Posted: March 10th, 2008 under Future Exchange, Future Trading, Futures Contracts, Futures Index, Futures Market, Futures Trader.
Comments: 5

Use of a Managed Futures Account to Enhance Overall Portfolio Return

Overall portfolio increases from 12% to 14.3%, or approximately 20%.

This concept is the backbone of Modern Portfolio Theory developed by Harry Markowitz in the 1950s, as referenced earlier. The investor sorts through various allocations of his or her assets to find what is known as the efficient frontier. This is the best mixture of assets to generate the most return with the least amount of fluctuation or volatility. The allocation or reallocation process needs to be reviewed periodically, as economic conditions change. Investments, for example, that do well during inflationary periods, like physical commodities, should be increased as the CPI rises and reduced as it falls. Read more »

Posted: March 4th, 2008 under Uncategorized.
Comments: 3

The professionals within this industry have their own trade association, the Managed Futures Association. Its function is to assist members, to promote the industry, and to advance the industry. They produce an excellent monthly professional journal that discusses issues important to members, everything from legislation, regulatory compliance, trade execution, to marketing. Their annual membership directory is an excellent source to find CTAs and CPOs.

Commodity pool operators are the individuals or corporations who structure funds. These are pools of commingled money from a number of individual investors. Most of the funds are large enough to require multiple CTAs. If the funds are properly selected, this further reduces risk, as we saw earlier. Most CPOs closely follow the performance of a large number of CTAs and analyze their performance. For this reason, CPOs can be excellent consultants in CTA selection. Read more »

Posted: March 4th, 2008 under Futures Index, Futures Market, Futures Options, Futures Prices, Futures Trading System, Managed Futures, investment.
Comments: 4

The investor who gets burned is the one who doesn’t do his or her homework. Spend time with potential traders. Find out how strong their passion for the market is. What sacrifices have they made? You can often tell the real McCoy from the con man by visiting their office. If it’s cluttered, filled with market data, that’s a good sign. If the candidate is more interested in the markets during trading hours than you, that’s another good sign. Interviews with their supervisor (virtually everyone who’s an insider is registered with the NFA and would have a compliance supervisor) may provide some insight. An independent CTA would not have a direct supervisor, but would have to clear trades through someone. Don’t forget the NFA Information Center. Read more »

Posted: March 4th, 2008 under Uncategorized.
Comments: 4

For the uninitiated, Paul Tudor Jones has had, and is still having, a spectacular career as a futures trader. If you had invested $1,000 in the Tudor Future Fund at its inception in September 1984, you would have had $17,482 by October of 1988. He combined five consecutive years in a row of triple-digit annual returns. During the month no one on Wall Street forgets, October 1987, his fund registered a 62 percent gain.

Unfortunately, he is no longer accepting money. As a matter of fact, he’s making distributions. This is one of the important “catch 22s” of the managed futures industry. Once a money manager becomes famous, he or she is no longer accessible because his or her minimum investment is out of the reach of everyone but the largest investors. If the CTA is not famous, there is probably a good reason—untested or weak stats.

What happens in managed money is not unlike what happens in any high stakes, competitive undertaking, or sport. If there is skill and luck involved, all the money flows to the superstars. Equity pours down the sieve from the many to the few that outperform all others. At some point, the few become overloaded. Excess venture capital must search for new talent. Great new traders enter the competition and work their way to the top. Read more »

Posted: March 4th, 2008 under Future Exchange, Future Fund, Futures Market, Futures Trader, Managed Futures.
Comments: 4

Direct Participation Programs

The next level up in size and complexity is direct participation programs, or DPPs. You may think of them as tax shelters or limited partnerships (LPs). They are constructed to pass through all of their income, gains, losses, and tax benefits to their owners. The partnership itself pays no taxes because the partners accept liability. Gas-oil exploration and real estate development are common LPs.

Unlike those big sisters, the commodity trading limited partnership is not a tax shelter. It is structured to provide limited liability to investors. The syndicator is the CTA or a CPO, and usually the general partner as well. These can be public or private. Private LPs are usually formed by a small group of wealthy investors, while public LPs attract large numbers of small ($2,000 to $5,000 minimum) investors. The latter requires a full-fledged prospectus and is more stringently watched by federal regulators. Both must be registered with the SEC. Read more »

Posted: March 2nd, 2008 under Corn Futures, Crude Oil Futures, Future Fund, Future Management, Future Trading, Futures, Futures Contracts, Futures Market, Futures Prices, Interest Rate Futures, Managed Futures, S&P Futures, Stock Market Futures, market.
Comments: 4

Your choice of investment vehicles ranges from an individual account with unlimited risk to funds that guarantee the return of your principal. There is also a wide assortment of legal procedures you can take if you feel you have been treated unfairly.

On the most basic level, you can open a futures trading account and give your broker authority to trade your account. The first step is filling out what are known as account papers. The most important of these documents include:

1. Acknowledgment of Receipt of Risk Disclosure Statement—By signing this, you acknowledge you understand everything that could go wrong in your trading account and that you accept these risks. Key among the risks are that you could lose more than your original investment, at times market conditions may be such that you cannot liquidate a losing trade (limit up or down days), placing protective stop loss orders will not necessarily control losses, spreads may not be less risky than straight long or short positions, and the high degree of leverage in this investment can work against you, as well as for you.

Read more »

Posted: March 2nd, 2008 under Future Exchange, Future Investing, Future Management, Future Trading, Futures, Managed Futures.
Comments: 4