Managed futures are professionally managed investment accounts that trade in the futures markets. Managed futures are a good way to diversify your overall investment portfolio, but many investors wonder whether they should manage their own futures trading account or let a professional Commodity Trading Advisor (CTA) manage the account.
Time and experience are the two major factors to consider when you are deciding to manage you own futures account or invest with a CTA managed futures account.
Time Devoted to Managing a Commodity Trading Account
Most investors work full time jobs and cannot commit the time it takes to properly manage a futures trading account. It can be very time consuming managing commodity trades, especially if you prefer to do short term trading. The futures markets are much more leveraged than stocks, so they do require a more hands on approach.
You must honestly ask yourself if you can commit the time and whether monitoring the markets and trades will be a distraction to your normal life. It can take anywhere from a couple hours a week to 8+ hours each day to manage an account, depending on your trading style. It normally doesn’t make sense to jeopardize your full-time occupation to manage a commodities account that is only a portion of your overall investment portfolio.
The opportunity costs that are involved in managing a futures account are also a concern. Could you make more money in the long run by devoting more time to your job? Or, would you rather spend the extra time with your family, friends and hobbies? These are considerations that you should evaluate in order to make clear whether it makes sense to invest in managed futures programs or you want to manage yourself.
Experience in Trading Commodities
Your trading experience, or lack thereof, in the futures markets could be the critical factor in this decision-making process. If you have never traded commodities or futures before, you have to realize that it takes a great deal of time to learn how to trade properly. Many traders never get it right and it is a very frustrating and costly endeavor for them.
In my opinion, the odds of making money in the futures market are much higher if you leave the trading decisions to a professional. By professional, I mean a professional CTA with a proven track record over a period of several years that has a substantial amount of assets under management. While there are not many CTAs that have low minimums, (less than $20,000) with track records longer than a year, there are some. There are certainly many more CTAs to choose from when the account minimums is higher. You may also find longer track records with CTAs that have higher account minimums as well.
There are a few good sources for researching CTAs online. We use Autumn Gold as our primary source and we offer our customers free access. Here you will be able to filter over 300+ programs by return, drawdown, volatility, and more. You can compare with other CTAs and even build a portfolio of CTAs for diversification using correlation measures.
In the end, you have to decide whether you believe that you can do as well as a professional. You may want to start by keeping a personal track record. Without this data, personal recollection could be distorted. Compare your record to those of the pros and see how they measure up. The learning curve is steep for many and there will undoubtedly be some stress along the way if you try to trade on your own. It is a great accomplishment for those who do learn to trade successfully and take control of their trading and investments for the rest of their lives. Many go on to establish careers in trading and have a great deal of independence.
In most instances, for most investors, it makes sense to invest with a CTA and let them handle the trading of the account. Some people, however, want to learn how to trade and they have the time, knowledge, resources and desire to succeed. Both approaches are possible, too. In either case, I work with clients to find a CTA or portfolio of CTAs that will help them reach their investment goals and I also educate and mentor new and experienced traders in the futures markets.
Trading futures, options on futures, retail off-exchange foreign currency transactions (“Forex”), investing in managed futures and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
Commodity Trading Advisors typically charge 2% management fee and 20% incentive fee. Investors are encouraged to thoroughly read the trader’s disclosure document for information on the fees that are applicable to the specific trading program that is in question.
