What are managed futures?
When you buy futures as an investor, you are making a contract to buy a certain commodity, such as corn or coffee or financial instruments, at an agreed-upon price, to be delivered on a future date. These contracts are usually traded before the delivery date, so most of the time, people don’t actually take delivery of a truckload of corn or coffee.
Futures contracts are traded, usually on a commodities exchange. The idea is that the price of your commodity will be higher than the price you paid for it before the contract expires, and then you make money on the investment. Because the commodities market is a volatile one, there is a chance you’ll earn a significant amount on your investment. However, the risk of loss is also high. Managed futures are a pool of futures contracts managed by professional money managers, in which individual or institutional investors have a share. In that way, it’s similar to a mutual fund, only the investments in this case are futures contracts. Advantages:- Investing in a pool of futures contracts means more diversification and less risk for your portfolio than investing in individual futures contracts on your own.
- You benefit from the expertise of professional money managers who understand the futures market.
- Returns can potentially be above average.
- Management fees and operating expenses are high compared to other investments. The funds usually charge an ongoing management fee in addition to a percentage of the profits, plus brokers charge trading commissions that are passed along to investors.
- It’s often difficult to find information on futures
- These are an extremely risky investment.