GENERAL OVERVIEW OF MANAGED
FUTURES
What Is a
Futures Contract?
Any
overview of managed futures must begin with a description of futures contracts. A futures contract is a legally
binding agreement designed to allow buyers and sellers to lock in a price on
a well-specified good (e.g., physical commodity, fixed-income security,
equity index, or currency) on a specific, forthcoming settlement date. They
are standardized according to quality, quantity, delivery time, and location
for each contract. The only variable is price.
How Did Futures
Trading Begin?
Today's futures markets,
and the principles that underlie commodity futures trading, evolved from
practices that are centuries old, dating back to the ancient Greek and Roman
markets. Commodity markets in the United States existed as early as 1752.
The
history of modern futures trading began on the Midwestern frontier in the
early 1800s. It was tied closely to the development of commerce in Chicago
and the grain trade in the Midwest. As grain trade expanded, a centralized
marketplace, the Chicago Board of Trade (CBOT) was formed in 1848 by
eighty-two
merchants. Soon after, trading began in grains, cattle, eggs, and other
commodities.
When Did
Trading in Financial Futures Start?
Beginning in the 1970s, the first financial futures contracts were launched
with Government National Mortgage Association (GNMA) mortgage-backed
certificates and foreign currency futures. Others quickly followed. As a
result, annual futures trading volume on U.S. exchanges from 1968 to 1998
Increased more than 10,500 percent.
Today, everything from
the S&P 500 Stock Index to crude oil to pork bellies are traded on federally
regulated futures exchanges like the CBOT and the New York Mercantile
Exchange (NYMEX).
Why Should I Invest in Managed Futures?
Because a well-diversified portfolio which includes Managed Futures has demonstrated
the
potential to yield better risk adjusted returns over the long run.
The risk of
trading futures, options, and foreign exchange can be substantial. Past
performance is not necessarily indicative of future results. The factual
information of this report has been obtained from sources believed to be
reliable, but is not necessarily all-inclusive and its accuracy can not be
guaranteed.
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