Frequently Asked Questions about managed futures and CTAs

What is a managed futures account?
A managed futures account is like any other account established to trade futures, except that the trading decisions are made by a professional money manager, called a Commodity Trading Advisor (CTA).

Who regulates CTAs?
CTAs are typically registered with a national regulatory body. CTAs trading managed futures in the U.S. are regulated by the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA). The CFTC is a Federal regulatory agency that is responsible for administering the Commodity Exchange Act. The CFTC monitors the futures markets, and options on futures markets in the United States. The NFA was designated by the CFTC as a “registered futures association.” The NFA is the self-regulatory organization for the futures industry.

Why trade managed futures?
Managed futures can provide valuable diversification to a portfolio of stocks and bonds. Managed futures have been shown to provide returns with little or no relation to the stock market. Harvard Business School Professor John E. Lintner found that including managed futures in a portfolio of stocks, and in a portfolio of stocks and bonds “reduces volatility while enhancing return,” and that such portfolios “have substantially less risk at every possible level of return than portfolios of stocks, or stocks and bonds alone.” Managed futures are also attractive as a stand alone investment.

Can I have a managed futures account and trade my own account?
Yes. Oftentimes, managed futures investors who are already trading, also invest with a CTA, because the managed futures account can offer additional diversification to the investor’s portfolio.

Is a managed futures account appropriate as a short-term or long term investment?
Usually, a managed futures investor views a managed futures account as a longer term investment, because futures investing is speculative, and most markets tend to be cyclical. Therefore, even the most successful professional traders can experience periods of flat returns, or even drawdown's. Consequently, losses can be incurred for those trading periods, and if an investor remains with the trading program for a longer term, the investor can allow the account the opportunity to recover from such cyclical losses. Ultimately, the managed futures investor will have to determine the length of time that he will keep his investment with a particular CTA.

Are managed futures appropriate for everyone?
Managed futures are not appropriate for everyone. Only risk capital should be used to invest in managed futures. Risk capital is defined as capital that you do not want to lose, but if you did, your lifestyle would not be altered. We recommend that the amount of money you invest depends on your risk tolerance, your temperament and your financial goals.

What is a disclosure document?
A disclosure document is the CTA’s description of his trading program and the CTA’s procedures that apply to your account. CTAs are required, by the regulatory authorities, to provide adequate disclosure to the investor. You must read the disclosure document before investing with each CTA. The document is required by the NFA and CFTC, and describes the fees, trading program, procedures for entry and exit, past performance and rules applicable to the overall trading program. Each disclosure document is different, so you must read the disclosure document for the particular CTA, before investing.

How do CTAs make profits?
Most CTAs use different techniques in an attempt to maximize profits and minimize risk. Some CTAs rely on technical factors such as price movement, trading volume, and chart patterns. Some CTAs rely on fundamental trading data such as supply and demand. Some CTAs use a combination of both. CTAs have the opportunity to make profits in both rising and falling markets.

What are management and incentive fees?
Most CTAs charge both a management fee and an incentive fee. An incentive fee is based on the CTA’s performance and is payable only when an account achieves net new profits. Incentive fees typically range from 10%-30% and are paid either monthly or quarterly. Management fees are typically 2% (annually) and are based of on the account's assets resulting in 1/12th of 2% per month or 1/2% per quarter. These fees can be lower or higher, depending on the CTA and the managed futures program.

What types of investors utilize managed futures accounts?
Individual investors seeking the profit opportunities of the futures market without the responsibility and demands of day-to-day account management. Also, individual investors who trade their own account, and are seeking further diversification through a different managed futures trading program.

Can I invest funds from my Individual Retirement Account ("IRA")?
Yes. Contrary to most typical IRAs, there are certain IRA trust custodians who accept futures accounts. Such IRA’s are often referred to as a “self directed” IRAs.

Before placing IRA funds into a managed futures account, funds from an IRA must be invested through a “self directed” IRA because an investor could suffer tax consequences if he transferred money from an IRA directly into a futures, options, or foreign exchange (forex) account. In order to avoid such tax consequences, the investor can trade futures, options and forex through a self directed IRA that is held at a trust company. When you roll over your assets from a typical IRA into a self directed IRA, the assets can continue to grow tax deferred. “Self directed” IRAs allow you to invest in managed futures, while still maintaining tax deferred growth, because the assets are contained in an IRA

If you do not already have a self directed IRA that accepts managed futures or futures trading, you will have to open a self directed IRA through a trust custodian, and then open a futures account under the trust custodian’s name. Your Broker, or RCG Managed Funds, if you do not already have a broker, can guide you through the process.

Where is the money deposited when a managed futures account is opened?
If you open a futures account with RCG, the funds in your managed futures account will be maintained in a segregated customer account

How do I check the status of my account?
If you open an account with RCG, you will receive reports on all purchases and sales, an overview of all open positions, and a month end summary of transactions, gains, losses, open positions and current account value. You can also contact your broker on a daily basis for this information, or receive such reports, daily, through internet access, or e-mail

How do I open a managed futures account?
Your broker, or RCG Managed Funds, if you do not already have a broker, are valuable resources for any additional information, and are available to assist you in the process. Please contact Ian Sweet @ 312-795-7727 for managed futures.