Risk Considerations of Managed Futures

Abstract:
In this paper we will discuss the benefits of the managed futures taking the risk factors under consideration. The popularity of managed futures is rising day by day. Managed futures emerge as a very good financial tool of late. Numerous traders are now going for the managed futures.
The professional and experienced money managers control the market operations on behalf of the investors. While trading with the managed futures the traders have to adopt an efficient risk management system to avoid the risks associated with it. Even taking the risks under consideration, it can be said that trading with the managed futures has lot of advantages.

The futures markets are now playing an important role in the global economy. Several new markets of different types are growing due to the rapid market expansion. The number of markets trading with managed futures has increased a lot.

Therefore, substantial diversification may be added to the traders’ investment portfolio. So, the managed futures have the potential of advancing the “risk adjusted rates of return”.
However, managed futures are risk prone at times. A trader may incur a big loss while trading with the managed futures. High fees demanded by the money managers and other expenses often reduce the profits.

Managed futures offer high leverage that sometimes multiplies the possibilities of investment loss. The investments made in managed futures funds are not liquid. Managed futures are not at all associated with the secondary market and several restrictions are there on managed fund transferring.

Investments in the managed futures fund may also be thought of as a potential aspect of a “diversified investment portfolio”. Some experts think that the managed futures investments are quite suitable for an investment portfolio’s risk capital portion. In fact, if a managed futures fund is not performing well, then the trader should not invest in that fund, for he or she will not gain any diversification benefits.

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