The ability of Managed Futures to offer a potential protection in periods when the stock markets are not performing well is one of the main strengths. This is the most important and valuable contribution and the main factor that attracts institutional investors. Additionally, investors' willingness to explore opportunities in new global markets has contributed to the growth of managed futures. Another major factor has been investors' willingness to accept the potential benefits of a professional, the CTA, trading their account.

While it is common for individuals to invest in the stock and bond market, it is not as common for individuals to invest in the futures markets. Moreover, it is difficult for an individual to successfully trade on their own in the futures markets. In fact, U.S. Government studies have suggested that up to 90% of individuals who trade futures by themselves -- meaning the individual makes the buy and sell decisions -- lose money. The reasons why are worth exploring.

When trading in any market, knowledge of the vehicle being traded is essential, and clearly people who know nothing about soybeans or crude oil trading are likely to be at a major disadvantage against professional traders. Moreover, the futures markets are volatile and highly leveraged, meaning a small price movement can have a tremendous impact on trading results. Is it any wonder, then, that individuals trading on their own often lose? An experienced CTA trading full-time on behalf of an individual may increase the chances of success. However, just as in any other investment, there is no guarantee of profits, and a CTA cannot eliminate the risk inherent to futures trading.

Next Article: Managed Account vs. Self-Directed Account