In the last update we highlighted the importance of reading and fully understanding the Disclosure Document of any Managed Forex or Managed Futures program that an investor may have an interest. We also highlighted one of the most important sections of the disclosure document which is the risk disclosure statement.
Another integral part of the disclosure document is the section that describes the investment strategy for the particular Managed Futures or Managed Forex program in which an investor may be considering. The investment strategy section will be unique for each particular trading program but it can list the commodities/currencies traded, a general description of the process used to enter/exit a trade, and the risk management rules that have been implemented. The investment strategy can also list whether the strategy is traded using discretionary or systematic integration methods.
An example of an investment strategy description is listed below. It is taken from the Disclosure Document for the Omaha FX managed forex program which is offered by the Omaha Foreign Exchange Corporation.
Currently Omaha Foreign Exchange Corporation has one trading program called OMAHA FX. The OMAHA FX currently uses twenty six pair of highly liquid currencies to place long and short orders based on the market daily data. Each order will not use stop loss but will use two types of profit targets: moving and fixed targets. Also, the OMAHA FX applies a maximum negative volatility protection based on the historical volatility data for each pair of currencies, price level, and trade type.
Omaha Foreign Exchange Corporation investment process begins with an analysis of the global foreign exchange market and global macro economic conditions that could impact each currency. Omaha FX believes that global economic growth rates, inflation trends, government policies, currency and interest rate trends, and demographic factors all interact to impact price trends. In addition to global macro and currency trends, analysis of specific supply and demand trends is conducted on an ongoing basis. Finally, Omaha FX analyzes the potential of supply demand conditions and price trends in one currency, to impact prices in other currencies. Using analysis of fundamental conditions, the trading principal then looks to his quantitative and systematic models and utilizes technical analysis to help with the timing of trades and the determination of the size of new positions. The trading principal believes that combining both fundamental and quantitative analysis creates a more in-depth understanding of market dynamics. Omaha FX exercises discretion with respect to the timing of entering into new positions when additional funds are added, and the timing of closing-out existing positions when there are withdrawals.
Omaha Foreign Exchange Corporation employs a series of proprietary decision-making tools to identify trading opportunities in the global currency markets. These trading tools are utilized in a set of systematic strategies which are combined into investment portfolios, and are designed to perform across diverse market environments. The process uses a systematic technical strategy incorporating a series of proprietary trading algorithms operating over four timeframes, ranging from one-hour timeframes to weekly timeframes. The algorithms combine trend continuation and trend reversal signals. The strategy uses restricted risk management rules in an attempt to achieve superior returns and maximum capital protection over the life-cycle of the trade.
Risk Disclosure: Past performance is not indicative of future results. The risk of loss in trading Commodity Futures, Options, and Foreign Exchange (Forex) can be substantial no matter who is managing your money. There are substantial risks and conflicts of interests associated with Managed Futures and Managed Forex accounts, and you should only invest risk capital. Trading in Commodity Futures, Options, and Forex is not suitable for all investors. If you are unsure your financial circumstances permit you to invest you should seek professional advice.
Each Commodity Trading Advisor (CTA) is required by the Commodity Futures Trading Commission (CFTC) to issue the prospective clients a Disclosure Document outlining the fees, conflicts of interest, and other associated risks. An investor must read and understand the current disclosure document before investing. CTAs have total trading authority, and the use of a single CTA could mean a lack of diversification and higher risk. The material and any views expressed herein are provided for information purposes only and should not be construed in any way as an endorsement or inducement to invest in any specific program.