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Risk of loss using managed futures/option investments can be substantial. You should carefully consider whether they are suitable for your composite financial strategy. Past performance is no guarantee of future results.
Margins Explained PDF Print E-mail
Leverage refers to the practice of applying small amounts of margin capital to purchase or control larger blocks of an asset for the purpose of magnifying the potential return on investment.

Traditional investors are accustomed to thinking of margin as an interest-bearing loan from their brokerage firm. In the futures industry, margin is not a loan but a cash deposit--a good faith bond whereby the customer places on deposit the required cash to indicate a willingness and ability to perform on the futures contract in the event that the position is not offset. Unlike stock margin accounts, future's margin is not subject to interest charges.


The Mathematics of Leverage

As a futures contract rises or falls, the unit price of movement is amplified by the degree of leverage inherent in the contract. To understand how an investor can achieve higher returns due to leverage review the following example.

Example:

A futures investor is buying (1) Corn contract at an entry price of $2.00 and selling the contract at an exit price of $2.10. The inherent leverage in a corn contract produces a return of 83% on the trade. Here is how it works.

ContractSizePriceMarginPrice ChangeChange
1 Corn Contract5,000 Bushels2.00$60010 cents$50 per point

In this hypothetical example, the futures investor deposits $600 in initial margin funds to control a $10,000 contract of corn at the current price of $2.00. If the price moves up 10 cents the inherent leverage will produce high net profit returns.

Buy at 2.00
Sell at 2.10
Profit 10 points x $50 = $500
Net Profit (before commissions) of 500 ÷ 600 (margin) = 83% return

Investors must remember, leverage is a double-edge sword. Losses can also be amplified to the same degree as gains. As leverage is increased so is risk. The same price movement in the opposite direction would produce a comparable loss. Therefore it is critical that alternative investors understand risk, before implementing a futures trading strategy
 
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All representations of managed futures, advisory services and alternative investments are wholly owned by Trade Center, LLC. Trade Center, LLC.(TCL) is a member of the National Futures Association and is registered with the Commodity Futures Trading Commission. Trade Center is an Independent Introducing Broker for both Man Financial and R.J. O'Brian (RJO). The Man Group can trace its origins back to 1783 when James Man first established a sugar broking business in the City of London. The Group operated as a traditional partnership for over two hundred years and was engaged mainly in the agricultural markets of sugar, coffee and cocoa.

Man Financial, the Group's brokerage division, is the world's largest independent futures broker and commands a global financial presence with offices in New York, Chicago, Kansas City, London, Paris, Singapore, Taiwan, Sydney and Brisbane. The division provides agency broking and other related services to a worldwide client base, which ranges from banks, CTAs, Hedge Funds and major industrial groups to individual private clients.

Founded in 1914, RJO is one of the oldest and best-known independent futures brokerage firms in the industry. RJO is a founding member of the Chicago Mercantile Exchange and a member of all the major U.S. Futures Exchanges. RJO offers clients access to the markets through a variety of account types including: On-line access through our Market Center Direct (MCD) software Managed Products including systems and CTA products Full Service Broker Assisted Accounts Foreign Exchange (FX) accounts

Trade Center offers brokerage for futures contracts traded around the globe, including the Chicago Board of Trade (CBOT), Chicago Mercantile Exchange (CME), COMEX Division of NYMEX, EUREX, London Metal Exchange (LME), New York Board of Trade (NYBOT) and the New York Mercantile Exchange (NYMEX).

Trade Center,is a commodity futures brokerage firm offering full service, discount and On-line Trading. Our Services include placement of investment funds into managed futures via commodity trading advisors (CTA's), advisory services, foreign exchange trading, single stock futures, and the administration of futures trading systems.

Contact Trade Center. for alternative investments, futures trading, commodity trading, options trading and strategies, futures options, direct access trading, on-line commodity trading, and Forex trading. Experienced Trade Center, LLC. commodity futures brokers manage alternative investments, managed futures via CTA's, options, futures trading, futures options, and forex trading. Equity Indices, Single-Stock Futures, Debt Futures, Financial Technical, Grains, Livestock, Metals, Energies, Softs and Cotton research synthesizes information from a global network of commercial firms, cash brokers, money managers, hedge funds and floor traders to generate thought-provoking analysis investors, traders and institutions demand. Availability of products and services may vary by jurisdiction.

Trade Center does not share or distribute personal information, personal data will be used for internal purposes only. Trade Center, LLC. never sells personal information to anyone; please view our Privacy Policy / Comments about our Web-site

*The reference to "top" or "best" CTA's is presented using percentage gain or dollar gain for the time period described. This ranking is limited to presenting CTA's currently shown on the TCL web site and is by no means attempting to judge or analyze the entire universe of CTA's. Use of the terms top or best is subjective in nature and this list was developed at the discretion of TCL.

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August 28, 2008, 10:32 am