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Following the Trend: Diversified Managed Futures Trading by Andreas F. Clenow

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9

Practicalities of Futures Trading

The work does not stop after you have designed a robust-trading strategy, rather the contrary; this is when things really begin. Now you need to deal with all the little practical details of the implementation of your strategy and if you have not traded global futures before, you may be in for a few surprises if you are not prepared for them.

REQUIRED ASSET BASE

Whether you opt to trade diversified futures for your own account, for managed client accounts or as a hedge fund, you need make sure you have a capital base sufficiently large enough to make full use of the diversification effects without taking on unhealthy levels of risk. If there is a catch to diversified futures trend trading, this would be it. For stock traders the capital base is not a big concern, because their position sizes are divisible into very small amounts and you can easily have 40 open positions in a US$1,000 account and get the same diversification as a fund of a US$100 million. Futures are not divisible in the same way, however, and if your capital base is not large enough you cannot take on many positions without racking up the risks higher than the desired level. In this strategy, positions are sized so that they will target a desired daily average impact on the overall portfolio and if you have an insufficient asset base that formula will indicate that you should buy only a fraction of a contract, which means that you should not buy at all. To illustrate the problem, ...

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