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Penson Managed Futures Desk
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Alpha
Alpha
Alpha is the measure of a fund's average performance independent of the market, (i.e. if the market return was zero.) For example, if a fund has an alpha of 2.0, and the market return was 0% for a given month, then the fund would, on average, return 2% for the month. -
Associated Person (AP)
Associated Person (AP)
An AP is an individual who solicits orders, customers or customer funds (or who supervises persons so engaged) on behalf of an FCM, RFED, IB, CTA or CPO. -
Assets Under Management (AUM)
Assets Under Management (AUM)
The amount of money a manager has in his program available to invest. -
Back Testing
Back Testing
An examination of the results generated by a model (e.g., a Value-at-Risk model) as compared to actual or realized results in order to assess the accuracy of the model. -
Barclay CTA Index
Barclay CTA Index
An index that tracks a composite of CTAs. -
Beta
Beta
A measure of the variability of rate of return or value of a stock or portfolio compared to that of the overall market, typically used as a measure of riskiness. -
Clearing House
Clearing House
An entity through which futures and other derivative transactions are cleared and settled. It is also charged with assuring the proper conduct of each contract's delivery procedures and the adequate financing of trading. A clearing organization may be a division of a particular exchange, an adjunct or affiliate thereof, or a freestanding entity. Also called a clearing organization, multilateral clearing organization, centralized counterparty, or clearing association. -
Commodity Futures Trading
Commission (CFTC)
Commodity Futures Trading Commission (CFTC)
Congress created the Commodity Futures Trading Commission (CFTC) in 1974 as an independent agency with the mandate to regulate commodity futures and option markets in the United States. The agency's mandate has been renewed and expanded several times since then, most recently by the Commodity Futures Modernization Act of 2000. -
Correlation
Correlation
A standardized measure of the relative movement between two variables, such as the prices of two different securities. The level of correlation between two variables is measured on a scale of -1 to +1. If two variables move up or down together, they are positively correlated. If they tend to move in opposite directions, they are negatively correlated. -
Commodity Pool Operator (CPO)
Commodity Pool Operator
A Commodity Pool Operator (CPO) is an individual or organization which operates a commodity pool and solicits funds for that commodity pool. A commodity pool is an enterprise in which funds contributed by a number of persons are combined for the purpose of trading futures contracts or commodity options, or retail off-exchange forex contracts, or to invest in another commodity pool. -
Commodity Trading Advisor
(CTA)
Commodity Trading Advisor (CTA)
A Commodity Trading Advisor (CTA) is an individual or organization which, for compensation or profit, advises others, directly or indirectly, as to the value of or the advisability of buying or selling futures contracts, commodity options or retail off-exchange forex contracts. Providing advice indirectly includes exercising trading authority over a customer's account as well as giving advice through written publications or other media. -
Efficient Frontier
Efficient Frontier
All investments generate a certain return. But these same returns come with different degrees of risk. Plotted on a curve, riskier investments usually generated larger returns. While lower or no risk investments, such as Treasury Bills generate much smaller returns. The efficient frontier of a portfolio is the point on the curve where an investor attains the greatest return while at the same time taking the least amount of risk. A portfolio's efficient frontier can include alternative asset classes such as Managed Futures. Managed futures, when added to a portfolio of stocks/bonds, can increase returns and lower risk. -
Futures Commission Merchant
(FCM)
Futures Commission Merchant
An FCM is an individual or organization which solicits or accepts orders to buy or sell futures contracts, options on futures or retail off-exchange forex contracts, and accepts money or other assets from customers to support such orders. -
Fundamental Analysis
Fundamental Analysis
The study of supply and demand information to aid in anticipating futures price trends. -
Introducing Broker (IB)
Introducing Broker (IB)
An IB is an individual or organization which solicits or accepts orders to buy or sell futures contracts, options on futures, or retail off-exchange forex contracts but does not accept money or other assets from customers to support such orders. -
Incentive Fee
Incentive Fee
The fee on new profits earned by the fund for the period. For example, if the initial investment was $1,000,000 and the fund returned 25% during the period (creating profits of $250,000) and the fund has an incentive fee of 20%, then the fund receives 20% of the $250,000 in profits, or $50,000. -
Maintenance Margin
Maintenance Margin
The minimum equity that must be maintained for each contract in a customer's account subsequent to deposit of the initial performance bond. If the equity drops below this level, a deposit must be made to bring the account back to the initial performance bond level. -
Managed Futures
Managed Futures
Managed Futures are investment vehicles run by professional money managers, known as Commodity Trading Advisors (CTAs), who manage client assets using global futures markets. -
Management Fee
Management Fee
The fees taken by the manager on the entire asset level of the investment. For example, if at the end of the period, the investment is valued at $1,000,000, and the management fee is 1%, then the fees would be $10,000. -
Margin Call
Margin Call
A request from a brokerage firm to a customer to bring performance bond deposits up to minimum levels or a request by CME Clearing to a clearing firm to bring clearing performance bonds back to levels required by the Exchange Rules. -
Margin to Equity Ratio
Margin to Equity Ration
The percentage of program assets used to meet margin requirements on a daily basis (Margin/AUM). -
Maximum Drawdown
Maximum Drawdown
The worst period of "peak to valley" performance for the fund, regardless of whether or not the drawdown consisted of consecutive months of negative performance. -
Modern Portfolio Theory
Modern Portfolio Theory
Developed by Harry Markowitz, the theory argues that diversification across many products increases the chances of enhanced returns. It quantifies the effects diversification can have within a portfolio and guides investors towards non-correlated products. -
National Futures
Association (NFA)
National Futures Association
National Futures Association (NFA) is the industrywide, self-regulatory organization for the U.S. futures industry. We strive every day to develop rules, programs and services that safeguard market integrity, protect investors and help our Members meet their regulatory responsibilities. -
Option Traders
Option Traders
A CTA who primarily uses options to execute trading decisions. -
Quantitative Arbitrage
Trader
Quantitative Arbitrage Trader
A CTA who primarily uses systemic measurements to execute trading decisions. -
Round Turn
Round Turn
A completed transaction involving both a purchase and a liquidating sale, or a sale followed by a covering purchase. A round turn counts both the buy and the sell as one event. In a typical exchange volume measurement, a one-contract trade would be counted as one round turn (i.e., single event, same trade, different customers). From the customer's perspective, a round turn represents two filled orders from his or her brokerage firm - one to take a position and one to offset that position (i.e., same customer, different trades). -
Sharpe Ratio
Sharpe Ratio
A measure that is widely used by investors to evaluate the performance of a portfolio or to compare the performance of different portfolios on a "risk-adjusted" basis. The numerator of the Sharpe Ratio is a measure of a portfolio's return during a given period, generally the return earned on the portfolio in excess of the risk-free rate of return over one year. The denominator of the ratio is a measure of the risk incurred in achieving the return, usually measured as the standard deviation of the portfolio's daily return. The higher the Sharpe Ratio, the better the portfolio's return in risk-adjusted terms. While the Sharpe Ratio contains information similar to that contained in a VAR measure, the two measures have different purposes and different perspectives. VAR is a forward-looking measure that is strictly a risk measurement tool; the Sharpe Ratio is a retrospective measure that compares risk and return information for an elapsed period. -
Sortino Ratio
Sortino Ratio
The Sortino Ratio is similar to the Sharpe Ratio, except that instead of using standard deviation as the denominator, it uses Downside Deviation. The Sortino Ratio was developed to differentiate between "good" and "bad" volatility in the Sharpe Ratio. If a fund is volatile to the upside (which is generally a good thing) its Sharpe ratio would still be low. To quote the Sortino web site: A comparable downside risk ratio that has come to be called the Sortino ratio has for the numerator the difference between the return on the portfolio and the MAR. The denominator for the Sharpe ratio is standard deviation, and for the Sortino ratio it is downside deviation." The MAR is the Minimum Acceptable Return (We are using 5%). -
Standard Deviation
Standard Deviation
Technically, a statistical measure of the dispersion of a set of numbers around a central point. Standard deviation measures the volatility, or uncertainty, of investment returns, and is therefore commonly used to measure the risk of a portfolio. The higher the standard deviation of a portfolio, the higher the uncertainty of the portfolio's return. -
Technical Analysis
Technical Analysis
An approach to forecasting commodity prices which examines patterns of price change, rates of change, and changes in volume of trading and open interest, without regard to underlying fundamental market factors. -
Track Record
Track Record
The historical returns of an investment program. -
Trend Follower
Trend Follower
A CTA who primarily follows price movement to execute trading decisions. -
Volatility
Volatility
A measurement of the change in price over a given time period.