Questions and Answers

1. What is a Managed Futures Account?

Managed Futures Accounts (MFAs) are trading accounts that are managed by Commodity Trading Advisors (CTAs). These CTAs have discretionary authority to place trades, as they see fit, in markets specified by the CTAs Disclosure Document. Trading styles can and do vary from one CTA to another. Required margin deposits may be different between CTAs. The CTAs Ira Epstein & Company (IECo) recommends are all registered with the Commodity Futures Trading Commission (CFTC) and are members of the National Futures Association (NFA).

2. How are Managed Futures Accounts Regulated?

Managed Futures Accounts are amongst the most highly regulated of all investments. The CTAs managing these accounts are registered with the Commodity Futures Trading Commission (CFTC) and are members of the National Futures Association (NFA). Each CTA's Disclosure Document is filed and reviewed by the CFTC prior to public distribution. The NFA audits Disclosure Documents on a regular basis, at least every 9 months. Many CTAs update their performance records monthly. Regulators pay close attention to a CTA's trading activity, monitor how performance data is reported and how promotional material is distributed. Violations of CFTC and/or NFA rules may result in financial penalties and/or loss of that CTA's trading privileges.

3. Do Managed Futures Accounts carry lower risk compared to
other types of Futures Trading Accounts?

Managed accounts carry risk similar to that of other Futures Trading Accounts. Any and all trades in the Futures Markets carry risk.

One of the key components of the CTAs that we recommend is the ability to manage risk in all types of market environments. Almost all CTAs can and do experience draw downs in equity at different times. The key point here is realizing that draw downs can and do occur. One of your goals should be to find advisors that have not shown excessive peak to valley draw downs.

4. Are Managed Futures Accounts more profitable than Self-Directed Accounts?

Opening a Managed Futures Account (MFA), does not in anyway guarantee success. CTAs have their share of pitfalls, not too dissimilar from Self-Directed Traders.

Self-Directed Traders who have the time, knowledge and energy needed to trade the markets can be successful. Accessing market information, acting upon it in a timely manner and then managing your trading decision are but some of the important factors that combine for a successful trade. Unfortunately, as history shows, many investors fall short when it comes to directing their own trading accounts.

5. Why would an experienced trader want to invest in a Managed Futures Account?

Diversification is the main reason why an experienced trader might consider a Managed Futures Account. Self-Directed Traders are often limited by their particular trading styles. Different CTAs have different trading styles, which in turn can offer investors a diversified approach to trading the Futures Markets.

It is not uncommon for even experienced traders to not have the time or energy to learn and implement a new trading style. Some investors shy away from trading styles that they are not familiar with. By having trading accounts with more than one CTA, diversification can be achieved. Studies on this subject show that portfolios diversified in Managed Futures have considerably outperformed portfolios invested in Stocks and Bonds alone.

Study from the brochure "Portfolio Diversification Opportunities" printed by the Chicago Board of Trade.

6. What are some of the mistakes investors make with Managed Futures Accounts?

Investors who choose a CTA on the basis of a winning track record only, might be surprised to see what kind of risk was taken in order to achieve such results. Selecting a CTA for being the "Hot trader of the Year" guarantees nothing.

Investors in MFAs can become impatient with a CTA if trading results languish for a period of time. Investing in Managed Futures should not be viewed as a short-term investment. Account jumping, the moving from one CTA to another, can be counter productive. Investors "jumping ship" at the low point of one CTA to get on board with another "hot at the moment" CTA, does not in any manner guarantee a better result.

Managed Futures Trading Accounts are not for everybody. Investors in these programs must realize that even professional CTAs can and do have draw downs.

7. What does the Disclosure Document tell me about a specific CTA?

Similar to a prospectus for mutual funds, the Disclosure Document commonly referred to as a "D-Doc” contains a wealth of information about that specific CTA. All Disclosure Documents have to be approved by the CFTC before investors can review them and all performance records must be updated every month.

Disclosure Documents must provide biographical information on the CTA and typically review that advisors philosophy of trading. A review of the trading program along with all the fees, potential conflicts and risk management are disclosed. Performance records are reviewed which show the net trading results, after all costs.

When choosing a CTA, careful review of the Disclosure Document is necessary. It can tell you a lot about the advisor, their trading strategy and how successful or unsuccessful their program has been to date.

8. How important is a track record in judging the performance of a CTA?

Investors should take note of the Trading Advisors Performance Record. However, this in itself should not be the sole reason for choosing a specific CTA. As mentioned above, the Disclosure Document spells out an advisors philosophy and trading style. This should be reviewed along with the track record in making your decision.

Track records are important and should show performance tables, spanning several years or more. A strong performance over a short period of time may be nothing more than luck. However, positive performance over a long period of time speaks volumes about a CTA's trading acumen.

Key components of performance records include:

1. When the trading program began
2. Worst peak to valley drawdown
3. Worst monthly drawdown
4. Total assets under management
5. The number of accounts closed with profits and or losses.

9. How are CTAs compensated?

CTAs are compensated primarily through an incentive program where the trading advisor, the CTA, is paid on a quarterly basis based on profitability. IECo's list of recommended CTAs standard rate of compensation usually falls between 20-30 % of profits after all costs per quarter. Some CTAs also include a small management fee that usually falls between 1 to 2% of assets under management per year, usually broken down to .025 to .050 % per quarter.

We believe the incentive compensation to a CTA is an attractive feature of Managed Futures Accounts. Think about it, if your advisor doesn't perform for you, then there is little or no compensation for them.

10. What size investment is needed to open a Managed Futures Account?

The amount you decide to invest with a CTA starts with the funds you determine you have available for this type of investment.

Next, you'll discover that each CTA has a minimum account size they accept.

IECo offers a full range of CTAs with different minimum investments.There is no limit as to how much you can invest.

Regardless of the amount of funds you wish to invest, funds placed with professional CTAs must be considered risk capital. Futures and Option on Futures Trading is not a suitable investment for all types of investors and only risk capital should only be invested.

That said, an allocation of 10 - 25% of your total investment portfolio might be considered by you towards a Managed Futures Trading Account. As outlined in the Benefits of Managed Futures Accounts section in this section of our website, a percentage of this size has been shown to enhance a portfolio's overall return when compared to portfolios that maintain their investments in just stocks and/or bonds.

11. How can I monitor my Managed Futures Account?

As we have mentioned, Managed Futures Accounts are fully transparent and all transactions are fully disclosed.

You can review all trading on-line by accessing your account from the Ira Epstein & Company website or by contacting your Managed Account Representative. If you have an e-mail address, e-mails will be sent to you for every transaction made in your account. In addition, monthly and year-end statements are sent out by post.

If you have any questions about your account or a CTA's performance, you can email the Managed Accounts Department at 1-800-284-1524.

12. Where are my funds held and can I request a
check to close my account without penalty?

Your segregated funds are placed with Shatkin Arbor, Inc. Traded Funds placed with CTAs are liquid. Should you wish to liquidate your account while positions are open, you can instruct us to liquidate any or all open trades and have funds dispersed. There are no penalties for fund withdrawals.

13. Can funds be transferred between CTAs or moved
from my self directed account to a CTA?

Our customers can move their funds from one CTA to another without paying loads or fees.

If an IECO customer wishes to allocate funds from their Self-Directed or Broker Assisted Trading Account to that of a Managed Account, this can also be done. A separate Disclosure Document needs to be signed when establishing a new Managed Account with each different CTA.

14. Can a CTA manage a retirement account?

Retirement accounts can be placed with CTAs. In fact, many Futures Clearing Merchants (FCMs) require investors to use CTAs if they have no futures trading experience and wish to allocate retirement funds to commodities trading.

Remember, risk capital should only be used when trading futures on your own or with a CTA. Qualified money can be placed with CTAs, but remember that these funds are speculating in commodities. No more than 30% of ones retirement portfolio should be allocated towards the Futures Markets at any particular time.

There are several different Financial Custodians that specialize in handling futures accounts. Transferring funds to them is easy.

15. How do I open a Managed Futures Account?

Opening a Managed Futures Account is easy to do.

You start by filling out the IECo Online Account Forms on our website. Disclosure Documents for the CTAs are posted on the Recommended CTAs page on this website.

You should print out the CTA Disclosure Document. In it will be the documents you need to sign and faxed back to us at 1-312-697-8778.Retirement accounts will need to establish an account with a custodian handling Futures Trading Accounts. We can send you out the forms for several of them. For more information on this please contact the Managed Account Department at 1-800-284-1524.

In summary, the steps to open a CTA Managed Futures Account are:

1. Open a trading account with IECo
2. Read and sign the CTA's Disclosure Document Acknowledgment
3. Read and sign the CTA's Advisory Agreement Contract
4. Fill out the Required Client Information Page
5. Read and sign the CTA's Fee Authorization Letter