22 Managed Futures Terms To Know

January 29, 2019 rcm-alternatives 0 comment  Like
Education, Hedge Funds, Managed Futures, Markets

Sortino Ratio vs Sharpe Ratio vs Sterling Ratio vs MAR Ratio vs How Do I Calculate This Ratio……yikes. Managed futures certainly has perfected the art of having a language of it’s own. And it makes sense, there are lot of internal organizations, math equations and extra extras that help to make this industry what it is.  With that being said, keeping it all straight, from industry newbies to managed futures veterans, can be a challenge. We’ve compiled a quick hit list of 22 important terms, concepts, and of course acronyms, for you to keep yourself familiarized with.

 

The Math

  1. Sortino Ratio
    A risk adjusted return ratio that measures returns per unit of risk (with risk defined as standard deviation of negative returns).
    In action: (Compound ROR – risk free ROR) ÷ (Standard Deviation of Negative Returns)
  2. Sharpe Ratio
    This ratio measures return per unit of risk (with risk being the standard deviation of returns).
    In action: (Compound ROR – risk free ROR) ÷ (Standard Deviation of Returns)
  3. MAR Ratio
    Measures returns per unit of risk (with risk defined as the maximum drawdown).
    In action: (Compound ROR) ÷ (Max Drawdown)
  4. Max Drawdown
    One of the best measures of risk, the max drawdown is the most loss experienced by an investor in a specific investment.
    In action: (Trough Value – Peak Value) ÷ Peak Value
  5. Max Run-up
    Largest percentage of return between any two points in the history of a program
    In action: (Peak Value – Trough Value) ÷ Trough Value

 

The Acronyms

  1. Chicago Mercantile Exchange (CME)
    The CME is a financial and commodity derivative exchange based in Chicago that manages risk, trades futures, option, cash and OTC markets, optimizes portfolios, and analyzes data.
  2. Intercontinental Exchange (ICE)
    This company owns exchanges for financial and commodity markets and operates 12 regulated exchanges and marketplace.
  3. Futures Commission Merchants (FCM)
    An organization that solicits and/or accepts orders to buy or sell futures contracts. They typically verify your identity, send over the required margin to place a trade, verify funds, and keep you informed of pertinent account information.
  4. Commodity Trading Advisors (CTA)
    Futures money managers that trade on behalf of clients in identified markets according to a specifically outlined strategy – the manager is placing the trade directly into the clients account.
  5. Commodity Pool Operator (CPO)
    Pools together investor money and places trades in a single account owned by the fund, which leads to lower levels of liquidity and transparency and they can also offer lower minimum investment thresholds than individually managed accounts.
  6. Introducing Broker (IB)
    The person or firm most futures market participants have a relationship with, they’ll go over markets, talk about which programs are doing well, and guide you to the best fit.
  7. Guaranteed Introducing Broker (GIB)
    Very similar to an introducing broker, but they’re affiliated with only one FCM.

 

The Regulators

  1. CFTC (Commodity Futures Trading Commission)
    The CFTC protects investors and their money from manipulation and abusive practices as defined by the Commodity Exchange Act (CEA).
  2. CEA (Commodity Exchange Act)
    The CEA provides federal regulation of all futures trading activities. It’s main purpose is to limit, or abolish, short selling and eliminate the possibility of market manipulation.
  3. NFA (National Futures Association)
    NFA is the industry-wide, self-regulatory organization that is designated by the CFTC. They safeguard investors and the markets, and unsure members meet their regulatory responsibilities.

 

The Industry

  1. Managed Futures
    Managed Futures are alternative investments which rely on professional investment managers known as Commodity Trading Advisors (CTAs), who specialize in trading exchange traded futures contracts both long and short in markets across the world.
  2. Alternative Investments
    An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. Alternative investments typically include private equity, hedge funds, managed futures, real estate, and commodities.
  3. Hedge Funds
    Hedge funds are alternative investments using pooled funds that employ numerous different strategies to earn active return, or alpha, for their investors.
  4. Notional Funding
    Notional funding is unique to Managed Futures and allows an investor to leverage their cash investment by taking on additional risk for higher expected returns.

 

Indexes

  1. S&P 500
    This is a weighted index of the 500 largest U.S. publicly traded companies by market value and is regarded as the best single gauge of large-cap U.S. equities.
    In action: Market cap all S&P 500 stocks ÷ Index Divisor
  2. SocGen (Societe Generale) Index (SGI)
    Compiling a range of indices, the SGI is designed to reflect various markets and investment strategies, combining trading and market expertise with the rules-based and transparent methodology of accessible indices.
  3. Barclay Hedge Index
    This index measures of the average return of all hedge funds (excepting Funds of Funds) in the Barclay database and is calculated by averaging the net returns of all the funds reported in that month.

 

 

If you’re looking for more in-depth information, history behind the terms, and additional resources, check out our Stats, Definitions, & Players whitepaper!

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The programs listed here are a sub-set of the full list of programs able to be accessed by subscribing to the database and reflect programs we currently work with and/or are more familiar with.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history. Individuals cannot invest in the index itself, and actual rates of return may be significantly different and more volatile than those of the index.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

Limitations on RCM Quintile + Star Rankings

The Quintile Rankings and RCM Star Rankings shown here are provided for informational purposes only. RCM does not guarantee the accuracy, timeliness or completeness of this information. The ranking methodology is proprietary and the results have not been audited or verified by an independent third party. Some CTAs may employ trading programs or strategies that are riskier than others. CTAs may manage customer accounts differently than their model results shown or make different trades in actual customer accounts versus their own accounts. Different CTAs are subject to different market conditions and risks that can significantly impact actual results. RCM and its affiliates receive compensation from some of the rated CTAs. Investors should perform their own due diligence before investing with any CTA. This ranking information should not be the sole basis for any investment decision.

See the full terms of use and risk disclaimer here.

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