What is a
Managed Futures Account?
A
Professionally Managed Futures Account is a discretionary
account you give permission to a Commodity Trading Advisor
(CTA) to make all trading decisions on your behalf through
a revocable power of attorney.
Investing
in a managed account relieves you of the concerns
associated with trading i.e. market timing, asset
allocation, stop loss protection, etc. You will review the
CTAs disclosure document and trader's performance track
record. Additionally, Orion Futures Group, Inc.
will monitor your account.
What are
Commodity Trading Advisors?
CTAs are a
type of professional trader known as a "Commodity
Trading Advisors". Traders with this designation are
required by the US Government to submit a disclosure
document which outlines who he or she is, states the fees
and expenses charged to accounts and reveals the trader's
performance track record.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
Is a Managed
Futures Account appropriate as a short-term investment?
Quite
simply, no.. Futures investing is a speculative type of
investing, and like most markets tend to be cyclical.
Additionally, even the most successful professional
traders experience periods of flat returns or even
drawdowns. Consequently, losses will be incurred for those
trading periods. The wise investor will remain steadfast
to his/her investment plan and not close the account
prematurely in order to allow the account to recover from
those temporary losses in equity.It would not be a wise
investment strategy to open an account that you do not
intend to maintain for at least 3 years, ideally 5, to
benefit from compounded returns for the longer term.
Why can adding
futures to an investment portfolio improve its
performance?
The
foremost reason, according to research studies like Managed
Account Reports and The Lintner Study, is low
correlation (sometimes even negative) to the stock and
bond markets. Additionally, the futures markets have
demonstrated an ability to provide opportunities on a
highly leveraged basis to take advantage of major price
movements in the financial and commodity markets- either
bull or bear.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
Why is Professional
Management necessary and does having a managed account
lessen risk in a portfolio?
In our
opinion, Professional Management is necessary because the
futures markets are very complex and trading experience,
as well as, trading skills are largely responsible for
success in this arena. Profitable trading requires
discipline and temperament to respond to movements in the
market; in addition to knowing when and how to liquidate
positions as a part of a predetermined trading plan. All
this has to be done systematically in the face of emotion
to adhere to a proprietary plan designed to return
profits.
Futures
trading involves risk. The same leverage and market
movements that can produce profits can also produce
losses. This same scenario can occur in a professionally
managed account; however, one characteristic investors
should look for in a CTA is a demonstrated ability to
successfully manage risk over the long term. You must
understand that losses can occur regardless who is
managing your money.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
Are Professionally
Managed Futures suitable for everyone?
No, they
are not. We would first interview you to determine your
suitability and provide you with all of the necessary
information to make sure you understand both the risks and
rewards of this type of investing.. Generally, in addition
to having the required risk capital, an investor needs to
have realistic expectations about returns on investment,
tolerance to temporary drawdowns that inevitably will
occur, and acceptance of the reality that the risk of loss
always exists.
How can I access
the funds in my Managed Futures Account?
A managed
account offers a degree of liquidity. Excess funds are
usually available on one day's notice and can be wired to
you overnight, if you wish.You have complete control over
your account which allows you to deposit additional funds,
withdraw funds or stop trading anytime you wish.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
How do you
find CTAs for clients?
The basic
requirements for proper client/CTA matching involve:
- The Investment
Requirement which varies from CTA to CTA based on
their trading style.
- The Return Potential,
based on the historical performance track record from
the disclosure document must be attractive to you.
- The Level of Risk
which must be tolerable by you.
Our goal is to match you with
a trader who employs a trading plan that parallels your
investment disposition - aggressive, less aggressive or
somewhere in between. Also, we want to place you with a
CTA who will make money for you, but will not cause you to
have "sleepless nights" in the process because
of intolerable risk. When our recommendation for a CTA is
embraced by you as a good fit, only then will we set you
up with an account.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
What are the
fees and expenses associated with a Professionally Managed
Futures Account?
In summary,
the entire fee structure (primarily performance based with
deeply discounted commissions) in an account comprises:
- A one-time only
administration fee of 2 - 7% of the total amount
invested is charged by Orion Futures
- A monthly commission of
3/4% of the month-ending account net asset value and
deeply discounted per trade transaction costs which
all must be made back before the CTA is eligible to
receive any incentive fees.
- A CTA incentive fee.
CTAs share in profits generated in the account by
charging an incentive fee based on the difference
between each old and new profit high for the account.
These fees are usually paid from the account on a
monthly or quarterly basis as detailed in each CTA's
Disclosure Document.The incentive fee can only be
earned by producing on-going new profits for an
account net of all costs. (all commission charges
and per trade transaction costs must be made up before
an incentive fee is applied)
- A CTA management fee is
charged on the account balance whether the account is
profitable or not.( fee normally ranges between 3%- 6%
annually - see individual CTA Disclosure Document). We
are pleased to offer our clients a discounted CTA
management fee of 1% - 2 % annually.
- Many CTAs also charge a
monthly accounting fee that is applicable to all
accounts.
[All
fees are explained in detail in each CTA's Disclosure
Document. Prospective investors should always refer to
that document to know of all of the account fees
associated with a particular CTA]
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
How can
I track the activity and performance of my account?
- All complete listing of
all the activity in your account with your previous
day's balance can be securely viewed 24 hours a
day worldwide with internet access at VisionLP's web
site.
- You will also be
provided the same timely reports you would receive if
you were trading your own account. This includes
immediate mailed reports of all purchases and sales,
and a month end summary of transactions, gains,
losses, open positions, and current account value.
- You may call us at 888-769-9399
to obtain an up-to-date status of your account(s). Orion
Futures will have the same account information
updated daily.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
What common
pitfalls of investing should I be especially aware of
before opening a Managed Account?
Foremost,
Managed Accounts are not suitable for everyone in spite of
their potentially attractive returns! Risk of loss is ever
present even with professional management. Therefore,
unless you are confident it's appropriate for you, it
would not be wise to invest at all. Second, don't
chase returns. By that we mean, do not invest with a
particular CTA because he or she is currently hot. All
traders will inevitably experience drawdowns or periods of
flat returns. A wise investor will select a CTA based on
being comfortable with the money management skills and
trading style that have been employed in the past to
achieve consistent returns.Finally, have an
investment plan and stick with it. Investors, who
prematurely close accounts out of panic and fear when they
have encountered a period of flat returns or drawdown,
will inevitably experience losses. Patience and
perserverance is required to 'weather the storm'. Managed
accounts should not be looked upon as quick fixes to an
ailing portfolio, but as a long term portfolio component
designed to help balance overall risk while adding
diversification.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
Are the funds
in my account safe and can I use retirement funds in a
Managed Account?
Clients are
reassured to know that their money is held in a Customer
Segregated Account at Vision LP, a well established and
strongly capitalized Futures Commission Merchant (FCM).
Vision currently holds the equity and is the FCM of choice
for over 125 Introducing Brokers like Orion Futures
as well as, numerous professional traders and CTAs. Vision
has maintained substantially more regulatory capital than
it is required to maintain. Vision's auditors are the
national accounting firm of Grant Thornton.
Yes, you
can use IRA, trust, 401k rollover funds and other
retirement monies to invest in a Managed Account.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
How can
I open an account and how much money should I invest in a
Managed Futures Account?
Only risk
capital should be used in managed futures or any
speculative investment. Risk capital is defined as capital
that you do not want to lose, but if you did, your
lifestyle would not be affected. We recommend that the
amount of money you invest depends on your own
temperament, financial goals and risk tolerance and should
usually be approximately 5% to 25% of your overall
portfolio. Each CTA trading program has different account
minimums as detailed in their disclosure documents.
Before
opening an account you must be supplied with a copy of the
CTA's disclosure document. Read it carefully and go over
any questions you have with us here at Orion Futures
before you invest. After your questions have been answered
and you feel this type of investing is appropriate for
you, we will help you to complete the CTA management
agreement and Vision LP Customer Agreement Forms which
will need to be returned to our offices for
processing.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
I'm not new to trading
futures. Why do I need a Managed Futures Account?
Trading
your own account limits your returns to your own ability
and system. By employing CTAs who have a good performance
record, you are developing a diversified CTA portfolio of
your own. Thus you can gain the potential benefits of
adding futures to your portfolio. See the research section
below.
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Past Performance is not indicative of future results. The
risk of loss exists in futures/option trading.
Research
The
Lintner Study refers to a landmark paper presented in
1983 by the late Prof. John K. Lintner of Harvard
University entitled, "The Potential Role of Managed
Commodity-Financial Futures Accounts (and/or Funds) in
Portfolios of Stocks and Bonds," to the Financial
Analysts Federation. Using a composite performance of 15
trading advisors, Lintner showed that the return/risk
ratio of a portfolio of trading advisors (or futures
funds) is higher than a well-diversified stock/bond
portfolio. Furthermore, he found a low correlation between
the returns of trading advisors and those of stock, bonds,
or a combined stock/bond portfolio. Lintner examined the
period July 1979 through 1982.
Managed Account Reports
(MAR) is widely recognized by investment professionals as
a primary source for Commodity Trading Advisor (CTA)
performance statistics. Their performance analyses of CTAs
and futures funds are often quoted in such financial
publications as Barron's, The Wall Street Journal,
Forbes, Futures Magazine, and other leading financial
publications. The studies cited were conducted to
specifically examine the effect of managed futures in an
overall portfolio. A detailed 52-page study on "The
Role of Managed Futures in Investment Portfolios" can
be purchased for $10 dollars from MAR. They can be reached
at 220 Fifth Avenue, New York, NY 10001. |
