The term Managed Futures describes an industry made up of professional money managers known as CTAs (commodity trading advisors), who manage assets on behalf of their clients using over 150 different US and international exchange-traded futures markets as investment vehicles.
As shown on the graph above, money under management within the last 20 years has increased from under $2 billion in 1986 to $206 billion in 2008!1
This remarkable growth has been fueled by institutions and individual traders/investors that are recognizing the value of broader diversification with alternative investments that have a neutral correlation with traditional portfolios of stocks, bonds and real estate.
A complete understanding of managed futures requires a basic understanding of futures contracts. A futures contract is a legally binding agreement to allow buyers and sellers to lock in a price on a well-specified good (such as a physical commodity, a fixed-income security, an equity index, or a currency) on a future settlement date. Generally buyers and sellers tend to offset their respective positions in the futures market before actual delivery takes place.
Futures contracts are traded on organized exchanges in the U.S. and in a number of countries around the world. The rules and regulations of U.S. exchanges are intended to support competitive, liquid and efficient markets, as well as safeguard market participants. The Commodity Futures Trading Commission (CFTC), a U.S. federal regulatory agency, helps enforce exchange self-regulation and ensure market integrity of U.S. markets.
For a more complete introduction to the commodity futures industry please download the Chicago Board of Trade publication “CBOT Trading in Futures-An Introduction”.
