Managed Futures – how to select a Commodity Trading Advisor?

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Here are fair and objective criteria you should look at before open a managed Futures account:

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First, you should know that each managed program has to have a disclosure document. Many of the details that you seek should be found there.  Let’s start.

• What is the experience of the Commodity Trading Advisor? What we recommend looking for is some sort of mathematical and or technical trading experience.  Business and education business is important, along with finance, brokerage, etc. But, we feel that the technical background could potentially lay the foundations for a successful managed futures program.  Many brokers turn CTAs can’t stomach volatility once they have to make the decision by themselves and at times can repeat the same mistakes that amateurs do.
• What kind of strategy does the commodity trading advisor exercise? This is probably what you should look more that the actual returns.  Why? Managed that show high and abnormal return, could potentially also exercise risk (or very risky) futures trading strategies that might not fit your risk tolerance. Keep in mind, your goal in diversifying into managed futures is also to be in a place where your manager’s goal and your comfort level meet.   Again, your appetite for risk should dictate what program you choose.  You can start from trend following all the way to options selling strategies through day trading programs.  You have many options and you should explore them.
• What are the commissions and frequency of trading? Obviously commissions could affect tremendously the performance of your account.  You could so easy math how much the commissions could potentially erode your account and compare it to the potential return that the managed future might offer.
• How many assets under management (AUM)? It is very important to remember that you need to see under how much capital the performance was achieved.  If the capital was substantial than it indicates that that the manager could potentially exercise his methodology under many assets.  Many commodity trading advisors show high performance under small assets while they show decreasing returns while their assets have increased.
• What were the drawdowns? Every given methodology goes through drawdowns, you need to see what has been the biggest drop in equity and how long it to recover from it.  This is also should be part you’re your risk tolerance decision.

Naturally, returns are also important, but we assume that you wont look at anything that is negative.  The variables above will help you judge if any specific managed futures P program is for you.

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Managed Futures – how to select a Commodity Trading Advisor? is a post from: Futures Trading Blog for Independent Self-Directed Traders and System Traders