Commodity Trading Advisors and Managed Futures (2024)

FAQs

Are managed futures worth it? ›

Investing in a managed futures program can be great for portfolio diversification purposes. However, this asset class usually has tons of additional fees that might affect your returns. If you want to reduce your portfolio volatility and get the best returns, you should explore profitable assets like fine wine.

A commodity trading advisor (CTA) is an individual or organization that, for compensation or profit, advises others, directly or indirectly, as to the value of or the advisability of trading futures contracts, options on futures, retail off-exchange forex contracts or swaps.

If a firm or individual wants to provide advice on commodities trading, they are usually required to register as a CTA by the National Futures Association (NFA), although there are some exceptions.

Two common approaches for trading managed futures are the market-neutral strategy and the trend-following strategy.

Downsides of Managed Futures and CTAs

Dependence on clear market trends: The effectiveness of CTA strategies varies with the market conditions. In markets without clear trends, these strategies might be less effective. Often, this is precisely when investors turn to managed funds for help.

Managed futures investments are speculative, involve a high degree of risk, use significant leverage, have limited liquidity and/or may be generally illiquid, may incur substantial charges, may subject investors to conflicts of interest, and are suitable only for the risk capital portion of an investor's portfolio.

Commodity Advisor salary in India with less than 1 year of experience to 4 years ranges from ₹ 2.1 Lakhs to ₹ 3.6 Lakhs with an average annual salary of ₹ 2.9 Lakhs based on 83 latest salaries.

Administered by the Financial Industry Regulatory Authority (FINRA), the exam covers such complex topics as futures contracts, hedging, options, margin requirements, and myriad regulatory rules. Series 3 is a challenging, two-part, 150-minute exam with 20 multiple-choice questions, requiring rigorous exam prep.

However, commodity prices can be highly volatile, and investing in commodity futures and related products can carry significant risk.

Why are commodity futures risky? ›

The contracts do not convey ownership in the asset itself. The value of the shares in the commodity pool may not track the value of the underlying asset over time. This difference is because unlike with stocks, a futures contract cannot be held indefinitely in hopes that a fallen price will recover.

Commodities are considered risky investments because the supply and demand of these products are affected by events that are difficult to predict, such as weather, epidemics, and natural and human-made disasters.

Indicator-Based Directional Trading

This strategy uses an indicator to determine the direction of the trade. The indicator provides a clear signal when it's time to enter or exit a trade, making it easy to work with. Traders who use this strategy can expect to see consistent results and high success rates.

Futures trading strategies guide when to buy and sell contracts. In 2023, the top 5 futures strategies are spread trading, breakout trading, going long, pullback, and order flow trading. Futures trading offers profit chances but also risks from market swings.

The median single-manager managed-futures hedge fund charges a 2% management fee and a 20% performance fee, much like other hedge funds.

Access to a broad range of investments you otherwise may not have access to. By pooling your money with other investors, you also gain access to a variety of investments that you may have not been able to invest in as an individual. You can gain access to markets and strategies that rely on larger scale buying power.

Managed funds can help you diversify your portfolio across asset classes, sectors and geographies that otherwise could be difficult to access. There are managed funds that cover international shares, emerging markets, specific sectors, corporate bonds, government and semi-government bonds and commodities.