What is a Managed Account?
An investment account owned by an individual investor or a legal entity that is looked after by a hired industry professional is referred to as a "Managed Account". In contrast to Mutual Funds, which are professionally managed on behalf of many mutual-fund holders, Managed Accounts are personalized investment portfolios tailored to the specific needs of the account holder.
Who are the Asset Managers?
Broker Junction's asset manager listing is made up US-licensed Commodity Trading Advisors (CTAs) also referred to as Money Managers. CTAs are regulated by the US. Federal Government through the Commodity Futures Trading Commission (CFTC) with additional oversight granted to the National Futures Association (NFA).
What is a Commodity Trading Advisor?
A Commodity Trading Advisor (CTA) is an individual, who, or an organization, which, for compensation or profit, advises others, directly or indirectly, as to the value of, or the advisability of buying or selling Forex and/or Futures and Options contracts. Providing advice indirectly includes exercising trading authority over a customer's account, as well as giving advice through written publications or other media.
What is a Commodity Pool Operator?
A Commodity Pool Operator (CPO) is an individual, who, or an organization, which operates or solicits funds for a commodity pool; that is, an enterprise in which funds contributed by a number of persons, are combined for the purpose of trading Forex and/or Futures or Options contracts, or to invest in another commodity pool.
Is it safe to open a Managed Account at Broker Junction and hire a professional Money Manager to trade it on my behalf?
No it is not! Commodity Trading Advisors introduced to you at Broker Junction are Asset Managers specialized in trading leveraged financial instruments like Forex, Futures and/or Options contracts. These instruments are risky in nature. They do not belong to the "Securities" asset class like stocks and bonds do for instance. Futures and Options contracts are risky, because they are leveraged products and have expiration dates at which they become worthless. Off-Exchange traded spot currency contracts, also knows as Forex contracts, do not expire like Futures and Options contracts do, but they too are leveraged instruments, that bear substantial risk.
Can CTAs and CPOs trade stocks and bonds in Managed Accounts on behalf of their clients?
No they do not! CTAs and CPOs trade Forex, Futures and Options contracts but not stocks and bonds.
How do I open a Managed Account?
Next to reviewing and signing the CTA or CPO's Disclosure Documents and their respective Advisory or Subscription Agreements you will need to submit your clearing broker's account opening documents. In addition you need to grant limited "Power of Attorney" in writing to your preferred CTA or CPO of choice. Please contact a Broker Junction representatives to assist you in the account opening process.
What is the minimum initial deposit required to open a Managed Account?
The minimum initial deposit required to open a Managed Account varies and is determined by the Money Manager, i.e. the CTA or CPO of your liking. Both produce Disclosure Documents wherein they also disclose minimum initial deposit amounts needed to participate in their trading programs. Note: CTAs and CPOs are exempt from producing a Disclosure Document, if they cater their offering to Qualified Eligible Persons (QIPs) with an annual income exceeding $250k only.
What is a Disclosure Document?
A Disclosure Document explains in detail risks specific to any Commodity Trading Advisor (CTA) or Commodity Pool Operator's (CPO) trading programm. CTAs and CPOs are required to produce Disclosure Documents describing the risks and hazards associated with their trading programs, as well as all fees charged to client accounts. NFA requires CTAs and CPOs to deliver a Disclosure Document for the offered programm to prospective clients prior to, or when they deliver their respective Advisory or Subscription agreements to clients. Note: CTAs and CPOs are exempt from producing a Disclosure Document, if they cater their offering to Qualified Eligible Persons (QIPs) with an annual income exceeding $250k only.
What is a Margin Call in a Managed Account? What does Initial and Maintenance Margin mean?
Margins are financial guarantees required of both buyers and sellers of Futures contracts to ensure that they fulfill their Futures contract obligations. Participants in a Futures contract are required to post performance bond margins in order to open and maintain a futures position. Futures margin requirements are set by the exchanges and are typically only 2 to 10 percent of the full value of the Futures contract.
Before a Futures position can be opened, there must be enough available balance in a Managed Futures trading account to meet the Initial Margin requirement. Upon opening the Futures position, an amount equal to the Initial Margin requirement will be deducted from the trader's margin account and transferred to the exchange's clearing firm. This money is held by the exchange clearinghouse as long as the Futures position remains open.
The Maintenance Margin is the minimum amount an account holder is required to maintain in his managed futures account in order to hold a futures position. The Maintenance Margin level is usually slightly below the Initial Margin.
If the balance in a Managed Futures trading account falls below the Maintenance Margin level, the account holder will receive a Margin Call and is asked to fill up his account so as to meet the initial margin level needed to continue holding the same contract. If the client does not send in the required funds to offset the Margin Call within 3 business days, the broker might close out the client's position at any time and without any further explanation.
How do I fund my Managed Account?
Please contact Broker Junction to receive funding instructions for your Managed Account.
How is the Management Fee assessed in a Managed Account?
CTAs and CPOs charge their clients an annual management fee to cover part of their expenses. CTAs and CPOs usually collect the management fee on a monthly basis from their clients. Here’s a hypothetical example that demonstrates how a annual management fee of 2% is calculated and charged:
Beginning Equity Value: $100,000
Month End Equity Value: $105,000
Ending Total Account Value at Month End: $105,000
Management Fee in % (2/12 months = 0.001667 % per month)
Management Fee Due: $105,000 x 0.001667 % = $175.04
Partial months will be pro-rated usually.
How is the Incentive Fee assessed in a Managed Account?
The incentive fee is assessed monthly and is equal to a percentage of any new high-water mark in a client's managed account. A new high-water mark is represented by an increase in account equity from the previous month end, or the last month end in which an incentive fee was paid. However, no subsequent incentive fees will be payable to the Money Manager until the account has overcome any trading losses it suffered.
What is a Advidory Agreement and what is a Subscription Agreement?
An Advisory Agreement essentially specifies a Commodity Trading Advisor’s terms of business. A Subscription Agreement essentially specifies a Commodity Pool Operator's terms of business. Both agreement types include all fees and commissions charged by Trading Advisors and Pool Operators, Introducing Brokers and Futures Commission Merchants, as outlined in their Disclosure Documents respectively.
What is a high-water mark?
The term high-water mark is used to measure the highest value that an account has reached since inception, or since the last time an incentive fee was paid, if applicable. So, if an account is losing money, it must first recover to an incentive level above its previous high-water mark (at which point it was last charged an incentive fee) before an incentive fee can be assessed again. In other words, the account is protected against being charged fees when the performance in the account falls below the highest previous level.
Can anyone open a Managed Account?
Managed Accounts can generally be opened by any individual, partnership, corporations or trust.
What type of leverage is utilized in a Managed Account?
The leverage utilized in a Managed Forex Account is 50:1. The leverage utilized in a Managed Futures Account is 50:1 as well. The leverage utilized in a Managed Options Account is 100:1. If all three instruments are traded in a Managed Account, the leverage is hard to determine as it is a mixture of the above ratios.
What is leverage?
Also called margin, leverage is the ratio of the total amount used in a transaction to the required security deposit.
Can I have more than one Managed Account?
Can I have more than one Managed Account?
Can I have a Managed Account in addition to my self-directed account?
Can I transfer money between a Managed Account and my self-directed account(s)?
How often can I deposit/withdraw funds from a Managed Account?
You can submit deposit or withdrawal requests from your Managed Account at anytime and as often as you like to.
Is there a minimum or maximum limit on the size of withdrawals from the account? What about the number of withdrawals?
There are no restrictions to the size or number of withdrawal requests a client may make.
Where can I check the balance and/or performance of my Managed Account?
You can check the performance of your Managed Account whenever you like by logging into your account and checking the balance and equity values. Alternatively, you can check your daily account statements to see how your managed account is performing.
Are there any special tax implications that can result from a Managed Account?
For specific tax implications, please consult your tax advisor. All clients are solely responsible for reporting any relevant tax information to the appropriate authorities of their respective countries.