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The primary benefit of adding a managed futures component to a diversified portfolio is, among other things, to attempt to decrease portfolio volatility risk.  This risk-reduction contribution to the portfolio is possible because of the low to slightly negative correlation of managed futures with equities and bonds.

FUTURES/Commodities

Commodity investing is high risk investing. One of the main reasons for the development of commodity markets was to help producers, such as farmers, reduce the risk of loss through price fluctuations. For example, let's say a farmer expects to harvest a crop in September. He now knows his costs so he knows what price it will take in September for him to earn a profit. The farmer can sell a contract for future delivery, If he can sell a contract for future delivery at $3.00 per bushel and his cost to produce is $2.50 per bushel, he is assured of making 50 cents a bushel profit. If in September the price of his commodity is $3.25 per bushel, he will still only receive $3.00; however, if the market price is only $2.50 in September, he will have protected his profit.

The second party to the commodity contract is the broker who makes a commission for processing the contract. That leaves one party, the speculator, who is taking all the risk and expects a big reward. The large potential reward is brought about by the leverage available in commodity trading. The leverage is available because of the relatively large amount of product controlled by a contract and the small payment needed to buy or sell the contract.

The trading units vary with each commodity. An example of some trading units would be: corn, 5,000 bushels; cotton 50,000 pounds; and coffee 37,500 pounds. It can be seen that a small change in the price of a commodity can product a considerable change in the value of the contract and therefore in the investor's profit or loss.

In the commodity markets, each contract has a fixed minimum margin requirement. This amount is established by the commodity exchange but individual brokers may require a larger figure. These margin requirements may represent only five or ten percent of the value of the contract.
 

In addition to the initial margin, there is also a maintenance margin involved. The maintenance margin indicates how low the value of the investor's collateral can drop before a call is made. The margin requirements are designed to protect brokers from the losses incurred by speculators.

Two major factors that add to the risks involved in commodity trading are the effect of weather on crops and government intervention into the area of buying and selling commodities. Possible government intervention includes that of governments other than the United States.
 

Commodity speculation should only be entered into by
those who can afford to lose the amount at risk, and
additional amount that may be required due to minimum
margin requirements and / or margin maintenance call.
 

Global Trading Group, Inc. welcomes discretionary futures trading accounts.  To see the method used to trade the futures market see the Trading System page.

To open a futures Trading account please contact the office at:

(516) 876-4918

195 Hazelwood Dr.

Westbury, NY 11590

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