Choosing a Managed Future with Due Diligence
Jack R. Landry has worked in financial services for the last 12 years and written hundreds of articles about investing. He recommends (http://www.WisdomFinancialInc.com) for managed futures.
Due diligence is a term that does not necessarily have to deal with managed futures. But generally it does.
Due diligence involves either an investigation of a business or person. It can also include the performance of an act with a certain standard of care.
It is critical to have a certain level of thoroughness when considering adding money or capital in an enterprise. Especially when you have the expectation of gaining profit.
Managed futures are a unique type of investment because your money is directed by a money manager in the global markets, instead of being directed by you.
This means that especially when you start to get involved with managed futures, due diligence is an absolute must.
When you have due diligence you seek to thoroughly research the company you are looking to work with.This will help to increase your confidence and success of your managed future.
Due diligence requires asking the tough questions and doing the proper research to become fully comfortable with the manager, the company, and the strategy that is used at the particular firm.
Individual investors, far too often, don’t have the proper due diligence when it comes to setting up their managed futures. Managed futures are a unique type of investment that needs professional attention to the details.
So not having proper due diligence at the beginning can lead to big problems in their investments.
The first thing to do is to look at the company website.
When you do this you can find information on the CTA, or commodity trading advisor, or other managed future options that the company offers. Look at a variety of websites to determine your first impressions of the company.
If the website looks cheap or unorganized, consider going with a different company. You want a professional company that looks legitimate.
All of the websites you look at should contain information on the manager’s background, the strategy the company implements, and the team and contact information.
Second, you should always request a copy of the disclosure document, also known as a DDOC. It is important to read this document carefully because as a potential investor it will help you learn more about the company and individual money manager.
The National Futures Association (NFA) has a list of requirements that every manager must put in this document. When reading, pay close attention to the information and details in the DDOC because they are areas that may need to be addressed and discussed directly with the manager.
Third, go over your personal needs, questions, and concerns. With the manager or the particular CTA you are looking to work with. This is a crucial step that can either make or break your experience with the company and will really help you to decide if it is a good fit.
If you discuss any questions or concerns you have, then you can get answers and feel confident in the company and allowing them to manage your finances.
Fourth, learn about the margin-to-equity (ME) ratio.
Margin money is the amount of money it takes to maintain a position in the futures market. ME refers to the actual amount of cash that is divided by the total account equity it takes to maintain the portfolio of positions.
Generally, the higher the ratio is the more risk is involved in the strategy. However, this is not necessarily always the case.
Visiting with the manager will be able to give you an idea of what their work environment is like and the general professionalism with which business is handled. This may take time and may be seem like an inconvenience but it can make a big difference in how you feel about the company and putting your money in their hands.
Fifth, an individual investor can write up an entire due diligence questionnaire for a potential company. From this they can receive answers to their questions from multiple companies that they can take and compare to find the best fit.
Many managers will not have a problem filling out these questionnaires. If they do, it is often a good sign that they are willing to do what needs to be done for a potential client.
Also, many managers may already have a due diligence questionnaire on hand. They may give it to some prospective investors so that they don’t even have to worry about it.
As an investor, it is important to know that you trust the manager with your money. Before choosing one manager to control your managed future, make sure that you have covered all your bases and that you feel comfortable with what is agreed upon and signed in the contracts.
Due diligence is conducted by the individual investor. Each investor will have different ways to go about gathering all the information needed to make informed investment decisions.
The important thing is that each investor feels confident about moving forward with the investment.
Most of the services reviewed by this website are available or may be accessed from Australia (see 