The Efficiencies and Performance of Futures Markets
While managed futures trading are new to some, banks, corporations and mutual fund managers have used futures markets to manage their exposure to price change for decades. Futures markets make it possible for these companies “to hedge” or transfer their risk to other market participants, including speculators, who assume this risk in anticipation of making a profit.
Without speculators, price discovery would only occur when both a producer and an end user want to execute a transaction at the same time. When speculators enter the marketplace, the number of ready buyers and sellers increases and hedgers are able to execute larger orders at their convenience without effecting a dramatic change in price – providing additional liquidity, which helps ensure market integrity. By selling futures when prices are rising and purchasing as prices fall, their activity can have a stabilizing effect in volatile markets.
Over the past 27 years, managed futures have outperformed almost every other asset class, including high-performing S&P 500 Total Returns.
Looking back over the past few decades as a futures trading broker, managed futures have consistently outperformed other asset classes such as stocks and bonds. Consider an initial investment of $10,000 invested in 1980. If placed in a U.S. stock fund mirroring the S&P 500, the investment would have been worth approximately $288,000 as of early 2008. Allocating the same amount to a basket of international equities reflecting the Morgan Stanley Capital International Index of world stocks, the initial investment would have grown to nearly $120,000. But the same investment in managed futures, based on the Center for International Securities and Derivatives Markets weighting, would now be worth more than $513,000.
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