Understanding a Managed Futures Account

A managed futures account is a type of investment that allows regular investors to get involved in the futures market with minimal risk. This type of account is managed by a professional futures trader. Here are the basics of a managed futures account.

Managed Futures Account

A managed futures account is a type of investment vehicle in which investors pool their money together to invest in the futures market. A professional commodity futures trader is in charge of all of the money and makes investment decisions as if the money were from a single investor. The profits from the account are split up by the investors, and a portion of the profits goes to the investment manager. This is basically like a form of mutual fund except that it invests primarily in the commodities market. 

Benefit

The primary benefit of a managed futures account is that an investor with very little knowledge of the futures market can benefit from profit opportunities in the market. Many times, investors shy away from the futures market because they do not understand it. Investing in the futures market without the proper knowledge could potentially cause you to lose a large amount of money within a very short time. With the expert guidance of a professional commodity futures trader, you can make money without actually knowing anything about the market.

Risks

This type of investment also has some risks associated with it. Even though the risks of investing in the futures market are decreased by investing in this type of fund, you are still investing in a very volatile market. The futures market is one of the most volatile financial markets in the world, and prices can change quickly. This means that you need to be prepared for some losses in your account occasionally.

Costs

Another potential disadvantage of this type of account is the cost involved. In order to be compensated for her knowledge, the professional trader requires a certain percentage of the profits to be paid back to her. This trader will generally take the money directly out of the profits of the group as they are generated. Sometimes, the trader will take a large percentage of the money that is generated from trading. For example, the trader might take 25 percent of all of the winnings of the fund. When getting involved in this type of fund, you have to determine if the costs are worth the additional profits that you can get from investing. 

Diversification

Another one of the big advantages of investing in this type of account is that you can diversify your portfolio. The futures market tends to act independently of the stock market and bond market. This means that you can diversify away from these markets and continue to make additional profits even if the stock market is performing poorly. Commodities tend to do well when inflation is high.

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