managed futures
With as many articles as we have written about futures trading, theory, and strategy, you may be wondering, “Just how do I open a managed futures account”? Well, whether you believe it or not, this is a question we hear quite often. As we will explain below, opening a managed futures account can be quick and painless, but despite its apparent simplicity, it is very important to understand.
Since the process of opening a managed futures account is critical to grasp, we have listed 10 steps below for your ease of understanding. In addition to listing the entire process step by step, we have also included tips on how to complete each stage like a pro! This will give you the tools you need to efficiently open your account, while allowing you to choose the right trader for your goals. Scroll down and take a look below!
Steps to Open a Managed Futures Account
1. Investor Defines Profit Expectations:
2. Investor Searches through Futures Traders: If you are looking for a good managed futures trader, you can start by checking the websites of the top clearing houses in the futures industry. Usually, they will promote traders with track records of proven success, which makes most investors feel quite comfortable. Once you have glanced through those websites, do some Google searches with different managed futures related keywords. After you find a few companies, take some initiative and call around to brokers and traders to get a feel for feel for the business.
3. Investor Evaluates History of Traders/AUM:
4. Investor Selects Top Futures Traders: After you have scoured the internet and other resources for managed futures investments, you need to eliminate those you are unsure of. Usually, it is best to narrow down your list to 5 traders, and no more. If you are able to evaluate the information the traders have provided, citing the benefits and risks of each investment, it’s makes it far easier to make the right decision.
5. Investor Chooses their Futures Trader: After you have narrowed down the list of futures traders to 5 or less, the rest is easy. If you simply list the pros and cons of each trader’s strategy, yields, history, and risk, you should be ready to make the right decision rather quickly. Once you choose a futures trader to invest with, it’s time to review the contracts and get started.
6. Investor Completes Contract and Documents: Typically, futures traders do not have their own contracts unless they are a “Fund”, or “CPO”. For almost all investors, the contract is with the company which holds the funds, the clearing house. On this contract, the clearing house will address the risks of futures investments and outline several other related topics.
7. New Futures Account Created for Investor: Once you complete the contract and provide all required documents, the clearing house will file the paperwork and open an account for you. Along with the account number, the clearing house will also provide wiring instructions for you to fund your account. Remember, this segregated account at the clearing house is only in your name, and no one can withdraw funds or authorize trades but you.
8. Investor Funds the New Futures Account: After the investor has received the account number and wiring instructions, it is time to fund the account. For most futures accounts, the investor must wire the funds with “further credit to themselves” and their account number. By doing so, the investor is ensured that the funds will only be held in their name, and will never be transferred to a trader or broker.
9. Authorization Call with Trader and Investor: Once the funds of the investor have hit the clearing house account, the trader and investor are both notified. If the account is managed, then the trading can start immediately. If the account is non-discretionary, the trader and investor must have an “authorization call”. On this call the trader will explain the strategy of the investor, and ask for their permission to implement trades on their behalf. After this call is completed, the trader can legally start to trade the investor’s account.
10. Futures Trading Starts Next Good Day: After the wire and authorization call have been completed, trading starts the next “good day”. In many cases, futures traders will jump right into the market the same day, but if it is best to wait, they may do so for a few days.
Though the process seems long, it really isn’t at all. In fact, you can have a managed futures account opened and be in trade within just a few days. Despite the expedience of the process, you should always remember, there is NO rush to making your decision. Since you always want to give a futures trader at least 3-6 months to prove themselves, good preparation is the key to reducing time waste and poor investment decisions.
In summary, investing isn’t fun when you’re anxious and unprepared, but it is when you are making high yields hand over fist. For your benefit, be as thorough as possible, and make sure you understand every detail during the process of opening a futures account. Remember, though they may seem self-explanatory, every step is important to your success.
InsideTrade LLC
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