Wednesday, March 16, 2011

Global Macro vs. CTA's.

Also known as Commodity Trading Advisors (CTAs), managed futures are a pool of futures or forwards contracts managed by professional money managers. They are similar to a mutual fund, in that individual or institutional investors have a share, only the investments in this case are mainly futures contracts. Unlike fundamental securities such as stocks and bonds which are held within a mutual fund, a future is a derivative instrument, one whose value depends on the value of an underlying instrument.
Today, managed futures provide direct exposure to international financial and non-financial asset sectors. Trading advisors have the ability to trade in over 100 different markets worldwide. These markets include interest rates, stock indexes, currencies, precious metals, energies and agricultural products.

Features of managed futures
Because the margin deposit needed to buy or sell a futures contract is only a portion of the current market value of the contract, managed futures have an inherent degree of leverage. Any change in the price of a security can consequently result in a much larger percentage gain or loss on the funds deposited as margin. A proficient use of leverage can result in desired levels of return for the amount of capital employed.
The trading is based on the systematic application of quantitative models that use moving averages, break-outs of price ranges, or other technical rules to generate buy and sell signals for a set of markets. This tends to be automated, particularly with the emergence of electronic trading systems

In general, most managed futures managers tend to view price trends as a function of supply and demand for a particular commodity or financial instrument. As the interaction of these elements form continuous market movements they try to capture profits. In short, managed futures managers attempt to identify the beginning of a trend, take a position and exit it as it ends.

Managed futures investments can benefit from the application of a range of trading systems or investment strategies, such as systematic, arbitrage, and spread trading strategies. Investment approaches can also be differentiated by trading frequency and duration.
Exposure across the full range of market sectors helps to smooth out peaks and troughs in performance due to the tendency of markets in each sector to display broadly different behavioral characteristics. For example, the factors affecting world commodity markets frequently differ from those influencing traditional asset classes. Like capital markets, global commodity markets tend to move in cycles - with periods of price strength usually associated with growth and stability in the world economy and periods of weakness with recession - but within these broad cycles there are often seasonal and sharp price movements prompted by a sudden change in the supply picture as a result of environmental or political factors. Trading commodities using futures, it is possible to reap gains from the sometimes fervent upward and downward price movements that result from the uncertainty that frequently drives these markets.

Futures funds themselves can be structured with a high level of diversification. The significant growth in the number and diversity of futures markets in recent years has facilitated a broadly diversified approach across geographical regions and asset classes, avoiding over-concentration in any market or market sector.

Friend’s American market started falling as soon we gave a sell on it during last blog.
Dow till date has fallen from 12200 to 11750 levels.

Thanks for all your trust and Faith.


Atul Sikrai.
Sr Vice President & Head of Equities
wiTdom investment advisory.

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