Investing in a managed futures fund has become a more popular alternative since it has a low correlation to the traditional stocks and bonds portfolio and as such will not be drastically affected if and when it isn't performing well in the market. A few considerations have to be taken into account once you have decided to put a chunk of your savings into a managed futures fund to assure that you are making the correct financial decision.
- Do your research. Before getting into managed futures fund, you have to do a huge amount of research. A good resource would be the National Futures Association Web site. NFA has a complete list of all the licensed firms and individuals offering managed futures fund products. By checking the Background Affiliation Status Information Center (BASIC), you will see their current registration status and any disciplinary history. The NFA Web site also offers online learning tools, publications and other educational resources to help the public make an informed decision on trading.
- Try your hand on simulated trading. This is by far the most effective way of knowing the market terminologies, price quotations and general behavior of specific futures funds without having to shelve out that money yet. There are electronic trading simulators on the Internet you can try for free.
- Know the minimum account requirement. Some managed futures funds are more accessible since there are no income or net-worth requirements while others will require a huge capital in millions of dollars.
- Know the fees. Of course you have to pay your Commodity Trading Advisor or CTA. Most get their compensation based on performance and charge anywhere from 15% to 30% of the profits while some will charge a per trade cost or commission every time the fund trades. CTAs charge yearly management fees as well and these typically amount to 1% to 2% of the total fund size.
- Choose the right contract. Most funds that experience wider ranges in daily trading are generally considered more volatile. Some invest in more volatile funds because the trading cost is the same but the possibility of earning is greater. However, volatile funds are considered more risky thus the potential for loss is also greater. Get the present market information so that you know which funds have open interest and sufficient volume so that you can easily exit if the fund is not performing well.
The recent economic crunch has created panic among us. As more and more people are forced to leave their jobs due to recession, most of us are tempted to get into quick money making opportunities. This should be avoided as scams abound in the market. You do not want to lose your hard-earned money to unscrupulous schemes.