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CTA's Dull the Sharp Learning Curve of the Forex Market

The largest marketplace in the entire world is the foreign-exchange (FX) market.  The average daily turnover in this gargantuan market is $3 trillion.  That is a difficult number to wrap your mind around, but to put into perspective, if you took the average turnover of every equity market in the world—U.S. equity markets, European equity markets, and Asian equity markets—and added them all up, it would equal just under $300 billion.  So, the FX Market has a daily turnover that is ten times the amount of all global equity markets combined.

The amount of wealth made and lost in this market on a daily basis is mind boggling.  While the complexities of the interbank FX market can be rather intimidating for those who are new to trading, or new to finance in general, it is actually possible to generate profits from the FX Market without actually trading one’s own forex account.  By placing your funds with a professional fund manager, you can actively put your capital to work, and allow a proven professional to do the hard work.  Of course, no investment is ever guaranteed against loss, and especially so in the highly volatile FX Market.  However, there are hundreds of Commodity Trading Advisors (CTA’s) trading various size funds and managing capital successfully in this market.  If you are looking to diversify your portfolio by exposing a portion of your net worth to the FX Market, but you don’t want to go through the years of education that it takes to profit consistently from this market, searching for a qualified CTA may help you reach your goal.

CTA’s generally trade in the commodity, futures, and spot FX markets.  There are several reputable CTA databases that list all registered CTA’s and offer very detailed information including fund prospectuses that give a complete outline of a fund manager track record over the life of the fund, the basics of its trading approach, and many more details.  Oftentimes, in order to invest in large hedge funds, it is a prerequisite that you be an accredited investor, which means you have a minimum net worth of $1.5 million.  Also, the minimum investment amounts tend to be quite high for some funds, and there can be a minimum lock-up period where funds can be withdrawn for sometimes up to 1 year.

However, there are also many funds that do not require investors to be accredited, and some will allow individuals to invest capital with minimum investments of sometimes as low as $10,000.  Arguably, the most reputable database of CTA’s is Barclay Hedge.  Barclays tracks CTA performance and you can see the performance and details of thousands of CTA’s that are trading very diverse funds. 

The debacle of Bernie Madoff has changed the investment world forever.  Prior to Madoff, it was understood that investment schemes happen, and it was understood that it was imperative for investors to carry out full due diligence when entering into any type of investment opportunity.  However, Bernie Madoff changed things.  When his entire company was exposed as a giant ponzi scheme it became evident that, if Bernie Madoff could be a crook, anyone could be a crook.  The man helped create the Nasdaq!  His fund ran successfully for several decades.  As a result, there is an increased hesitancy for investors to hand funds over to even fully registered, qualified, and successful fund manager.

Thus, many investors are beginning to enter the world of managed futures.  Managed futures is basically a fund managed by a CTA where clients never hand cash over to the investment manager’s company.  Instead, they open an account at a pre-established institution at the direction of the CTA, and then the CTA is given legal power to trade the account.  In this business model there is complete transparency between the investor and the fund manager.  An investor can log into his account 24 hours per day, 7 days per week to check the exact balance of the account, and account activity, etc.  Also, unless there is a contractual lock-up period, the funds are completely liquid and can be withdrawn at any time as long as the fund manager is first contacted and informed.

Many analysts and financial forecasters are expecting a large growth in the managed futures industry as more and more investors prefer to have complete control over their capital and are very hesitant to hand over larger amounts of capital to fund managers.

In conclusion, if you are seeking to engage in the forex trading, but don’t have the time or desire to learn to trade yourself, it may be highly beneficial to begin researching through several CTA databases in order to find a fund manager that aligns with your risk tolerance and objectives. It is very important that if you do not spend the time to research the forex market yourself, that you do spend the time to research the credibility of the CTA you choose.

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