and the news media immediately blamed it on the trading in futures.Subsequent studies by the U.S. Treasury supported that view. But in 1988, AlanGreenspan, chairman of the Federal Reserve, released the Fed’s report, which suggested that derivatives did more good than harm on that day. Indeed, since 1987,dozens of academic studies of the crash have been completed. None of those studies supports the case against futures trading, and most of them agree with ChairmanGreenspan’s conclusion. In any event, the Chicago exchanges and the stockexchanges moved quickly to put in “circuit breakers.” These were intra-day pricelimits and trading halts that were designed to slow a fast-moving market.The advent of electronic trading was hastened by the scandal that erupted inthe Chicago futures pits in 1989, when undercover FBI agents operated a tradingsting and arrested dozens of traders for alleged violations of trading rules. It wasclear to CME management that regulators and congressional critics of the futuresindustry would impose possibly burdensome regulations unless the exchangesmoved quickly to provide a cleaner and clearer audit trail to prove that customers16
The Electronic Exchange
were not being unfairly disadvantaged in the trading. Hence, electronic tradingthrough a firm called Globex was announced as a responsible move towardimproved market surveillance and as recognition of the inevitable move toward computerization. Increased competition from foreign countries that were creatingfutures exchanges linked electronically also helped hasten the move to Globex.The foreign competition threatened the continued growth and success of Chicagoexchanges. Thus, these were the circumstances that prompted the decision by theChicago exchanges to seriously begin the move towards electronic trading.
THE OWNERSHIP AND CONTROL OF ELECTRONICEXCHANGESThe ownership and control of exchanges is also open to change. Electronicexchanges are more stock ownership oriented, instead of membership owned. Ina few years, the exchanges are likely to be structured as public or semi-publiccompanies. Many argue that the best system is one in which “members” still ownthe exchange and execute all of the trades, albeit electronically. Others argue thatthe exchange of the future will be one which is publicly owned as a for-profit corporation. All of the U.S. exchanges have announced intentions to be publiclyowned; today they are still privately owned.It is also likely that the “Internet system” may not be the most reliable methodof offering the system or the process. The exchange may need the security and reliability of a private system. Thus, it is likely that a sort of a quasi pit structure similar to the open outcry system may be the one that will ultimately emerge; that is,one which has its own managed computer lines, in order to ensure it has the requiredback-up capability to ensure continual trading, control of the access, and assuranceof the privacy elements. At present, the Internet has potential capacity limitations,without the back-up redundancy, and faces concern about privacy issues.Perhaps the most important factor is that communications systems know nogeographic boundaries. The attraction of electronic trading is that it should increasetrading volumes and liquidity in individual contracts, and it also offers a ready-madeopportunity for emerging countries, which might otherwise think of building theirown futures exchanges, to immediately be linked into the world dealer network.The world dealer network in turn can better offer or customize risk managementand investment products to these emerging markets.Indeed, the growth of an electronic exchange linked to a dealer market isgood for the exchanges because it generates new deals. Those deals are oftenhedged through the exchanges. Electronic trading linkages allow smaller financial institutions welcome access to the exchanges’ clearinghouses, which standbetween a deal’s counterparties and enhance the creditworthiness of both sides. In17
Chapter 2
the future, dealers who devise products with sufficiently standardized terms toattract a wide range of buyers might well find it most convenient to have those products listed on the electronic exchanges.Regulators also like electronic trading because it leaves a clearer audit andpaper trail than any floor trading system. Thus, it becomes easier to detect wrongdoing and violations of trading practices such as trading ahead of a customer, noncompetitive trading, and attempted market manipulation.
WHAT DOES ELECTRONIC TRADING MEANTO THE TRADER?Electronic trading has not changed the basic requirements needed to be a successful trader. But, it has reduced the time it takes for the order to change from anidea to a deal. The exchange, or the material place where the traders physically meet,shout out their orders, and consummate a deal, has changed to a more orderly andquiet place, where people can communicate electronically with each other andexecute their deals almost instantaneously.The electronic exchange makes for a more effective use of time and talentbecause it pulls the process into a much more efficient means of communication.It means almost all of the news is digested at the same time by most of the peoplein the marketplace. There has been the view or the assumption that floor tradersmade money because of superior trading skills, when in fact it may have beenbecause they had superior access to the market. The electronic exchange shouldnarrow the spreads in the marketplace. Buyers and sellers will be able to find eachother more efficiently and effectively. Its greatest impact though will be on the efficiencies of the communication process, which has an even greater impact on the totalprocess of trading. In a nutshell, it has the following effects on the trading process:➥ It reduces the time to execute a deal, from minutes, sometimes many minutes, to fractions of a second.➥ It makes it possible to enter, display, disseminate, and receive a broaderarray of information, orders, and material than ever before.➥ It makes it likely that new and more robust methods of analyses willbecome involved in the trading. Computational algorithms will be incorporated into an individual’s trading process. Statistical methods of estimation to reveal certain nonlinear relationships among various instruments will be used as a part of trading techniques.➥ It makes it possible to trade more things more frequently, which may beits biggest problem for the speculator.18
The Electronic Exchange
➥ It reduces the cost of trade execution by eliminating many of the peoplewho were physically handling the orders. All of that is done electronically.➥ It makes it possible for an individual to trade things 24 hours a day on manydifferent exchanges located in many different parts of the world.➥ It makes it possible for many new futures contracts representing manydifferent areas of the world to be offered for trading instantaneously all overthe world.➥ It may, for short time periods, make the price discovery process less accurate than it was before.➥ There may be, in the longer term, a separation of the various markets intoretail and institutional, with differences in liquidity and distinctions betweenshort-term and long-term liquidity.➥ It may mean that for some commodities, more of the trading will be concentrated in fewer hands.But,➥ It does not make it any more profitable. Nor does it make it any easier tomake profits, though it may seem to.➥ It does not change the need to do the analytical work. It will probablyneed to be done more carefully and more frequently than was the casebefore electronic trading started.➥ It does make it more important that you have a plan before you begintrading.➥ It will make it more important that you have discipline and practice it inyour trading.➥ It will require more planned or strategic trading.➥ It also will enable you to put a trading plan into effect without being physically present. You will be able to program your computer so that it enterscertain orders for you when certain things happen.In short, electronic trading holds much opportunity for all of us.Electronic trading of futures and other derivatives may have been late arrivingin the U.S. futures industry, but it is here to stay. First of all, it has been working successfully on the NASD stock market in the United States for so many years. Second,the increase in communications technology, the emergence of a generation of computer literate people, and the sheer inefficiency associated with physically cramming19
Chapter 2
more and more bodies into limited exchange floor space made the continued movetoward electronic trading inevitable. Third, the growth of competition from, andamong, rivals to Chicago exchanges has made it clear that for Chicago to survive asan industry leader it must link to foreign rivals on electronic systems and create a global trading system.
20
Chapter 3
Speculation Is Not aFour-Letter Word
Commodities . . .? That’s Russian roulette!Commodity trading is only for “high rollers.”Anybody who trades commodities loses.Mention commodity futures trading to a group of strangers at a cocktail party, andthe comments above are the most likely kinds of statements you’ll hear.So let’s consider some of the reasons why people trade and the more common reasons why many, if not most, lose.To review for a moment, in the first chapter we outlined two basic categoriesof people who take positions in commodity futures—hedgers and speculators.Hedgers are those who trade as a normal adjunct to their businesses of producingand marketing a product, or in the case of financials, buying, selling, or holding aportfolio. They buy and sell futures contracts as substitutes for merchandising transactions they will make at a later time. Speculators take positions in commodities onlyin the hopes of making a speculative profit by correctly anticipating price movements.21Copyright 2001 The McGraw-Hill Companies. Click Here for Terms of Use.
Chapter 3
WHY DO SPECULATORS SPECULATE?Many speculators trade simply because they want money, and the high leverage infutures trading affords the opportunity to turn small amounts of money into bigamounts.But it goes deeper than that. Some people trade because they seek a sense ofexcitement and risk not available to them in their daily work. The derring-do thathad survival value in frontier days is still extolled in our society, yet it is oftenunavailable in everyday life. In an industrialized nation where most jobs are routine, a person cannot usually win status through on-the-job valor.The commodity markets, though, give a person the risk, the feeling of a being“alone against the odds,” that is not available in the everyday world. There is a certain mystique and romance associated with commodity trading. To be able to pickup the phone and call a broker makes a person a participant in an exciting, international game. It pits his skill and judgment against that of all others in the worldof futures trading. To win is more than the making of money. It is a reaffirmationof one’s own ability and acumen; it is food for one’s ego—and therein lies thedanger. When the ego takes over, rational decision-making is impaired. A personwhose ego won’t admit a mistake tends to stick with a losing position too long.Consequently, people who fall in love with their positions become big losers.A successful trader knows and understands the importance of one’s ego in trading, and learns to control it. In fact, self-discipline is an important key to successful trading.Some of the basic psychological motivations for trading can be explained bythe greed/fear complex. People trade because they want money. Yet, by trading, theyfear losing what they want the most. Sometimes the greed motivation becomes sostrong that they overtrade. In other instances, fear becomes so overpowering thatthe ability of an individual to make rational decisions is impaired. A good tradingplan will help control this greed/fear complex.Another motivating factor is sheer gambling instinct. Some people tradecommodities because the market is like a “Las Vegas” for them. They enjoy theexcitement of the unknown, the taking of risks, and money doesn’t mean that muchto them. Usually these people are losers.There also seems to be a basic need-to-own drive in every individual. This drivemanifests itself in the decision to trade futures contracts and, undoubtedly, helpsexplain why the general run-of-the mill traders prefer to be “long” in the market andhesitate to go short. They would rather have no position than a short position.Before you trade, ask yourself whether any of the reasons above describeyou. If so, think carefully about your suitability for trading.
22
Speculation Is Not a Four-Letter Word
SPECULATION OR GAMBLING?Even relatively sophisticated investors and investment counselors have been heardto refer to commodity futures trading as “a close relative of a Nevada casino.”Gambling and speculation are distinctly different economic activities, however.Gambling involves the creation of a risk for the sole purpose of it beingtaken. The dice game or horse race creates risks which would not otherwise bepresent. If the police raid the dice game or the race track burns down, the risksthey offer no longer exist. Gambling involves sterile transfers of money betweenindividuals. In the strict economic sense, it absorbs time and resources, yet createsno new value.Speculation, however, deals in risks that are already necessarily present in theprocess of producing and marketing goods in a free, capitalistic system. As livestock and crops are grown and marketed, there are obviously risks of price changethat must be taken by someone. It can be those who own the actual commodity—or someone else.For example, let’s suppose you own a small ranch and decide to raise beefcattle. You know how much young feeder cattle cost, and you estimate how muchit will cost you to feed them up to market weight by next fall. Based on these calculations, you decide that if you can sell your cattle next fall at 60 cents per poundor more, you can make a fair profit and the enterprise will be worthwhile to you.The day you buy your feeder cattle you are assuming the risk that by market time next fall cattle prices will be below 60 cents per pound, which could meanno profit, or worse, a loss to you.The futures market enables you, by selling a futures contract, to shift at leastpart of this risk to a speculator who is willing to assume it in hopes of profiting froma change in that future price. The point is, the risk was there. It had to be borne bysomeone whether the futures market existed or not. The futures market served an economic function by facilitating the transfer of the risk from someone who didn’t wantit to someone who did. (This is, of course, a highly simplified example of a hedge.A much closer look at this operation is the subject of later chapters.)This does not mean that no one treats commodity trading as gambling. Anyonewho approaches futures trading without a knowledge and understanding of commodities and their markets is doing just that—gambling. And it shouldn’t surpriseyou that these people tend to be losers in the long run.
DO MOST SPECULATORS LOSE?Perceived wisdom has it that most commodity traders lose money. In this case,perceived wisdom is correct. All studies conducted over the years on this topic23
Chapter 3
yield the same conclusion: Most individual traders lose. Studies done by theUniversity of Illinois and others, as well as private industry surveys, have concluded that overall about twice as many people lose money as make money. Or,to look at it another way, roughly one-third are winners and two-thirds are losers.On the average, each loser lost more than each winner made.Although most such surveys are not scientifically sound as random samplesand often suffer from “survivor bias” (i.e., the losers leave and the winners stay totrade more actively), the research probably reflects reality.Even the most experienced, most successful traders make losing trades. Infact, many professional traders have more losing trades than winning trades, butstill make money because the losing trades represent small losses and the winningtrades represent large gains. For example, if you had 10 losing trades averaging $100each and two winning trades averaging $600 each, you would be a net winner of$200, even though you had more losing than winning trades.
NO WINNING FORMULASince there is obviously no magic formula for winning, it is important that thebeginning trader understand some of the more common reasons why inexperienced traders may lose money.1. Undercapitalization Experience has proven that to begin trading with too little risk capital (and risk capital it must be; traders should trade only with capitalthey can afford to lose) is almost a guarantee of failure. A position not adequately backed by trading capital may be forced into liquidation by a temporary adversemarket move, which results in a call for additional margin that cannot be met.More on this in the next chapter.2. Lack of Knowledge Some traders, of course, lose simply because of lack ofknow-how. It is easy for inexperienced traders to misinterpret or miss altogetherimportant pieces of information that affect prices. The result can be frequent mistakes in market analysis and errors in trading decisions. Before getting involvedin trading, one should know the methods of fundamental analysis and be able todetect errors in trading decisions. One should know the methods of fundamentaland technical price analysis, learn the different types of buy and sell orders and howthey can be used, and study the production and marketing system for the futuresyou want to trade. (Note: Yes, even financial futures like T-bonds have a production and marketing cycle!)3. Trading Too Many Different Commodities Many new traders try to followtoo many different commodities. It is difficult for even an experienced trader to keep
24
Speculation Is Not a Four-Letter Word
a close watch on more than a few commodities at one time. It is good advice whenstarting out to stick to one or two commodities and learn them thoroughly.4. Lack of Discipline A lack of discipline is another frequent pitfall for a new trader. As was pointed out earlier, human ego is an important part of trading. When youtake a position in the markets, you become emotionally involved. You defend yourdecision. Unless you are exceptionally objective, you can trap yourself in an unprofitable position by refusing to admit, even to yourself, that you have made a mistake. Successful traders exit quickly when they suspect they are wrong. They donot fight the market.5. Lack of a Trading Plan Probably the single most significant mistake newtraders make, however, is to embark without a trading plan. A plan is like a roadmap. Just as you would not set out on a cross-country drive without a map, so youshould not embark on commodity futures without a clear-cut trading plan.An adequate plan forces you to set objectives and develop discipline in meeting those objectives. An adequate plan removes speculation from the personalrealm of gambling.
PRACTICE TRADINGBefore you open an account and lay your money on the line, it is a good idea totest yourself and your abilities by making some hypothetical trades. Appendix I contains the “Commodity Trader’s Scorecard” work sheets and a set of instructions fordoing such practice trading. Results of your practice trading may help you decidewhether futures trading is for you.A word of caution is in order, however: Success in paper trading is no guarantee of success in real-life trading. If you are like most people, you will probably react quite differently when faced with a real trading decision versus with a papertrade. This is a major reason why one should be wary of placing too much faith inhypothetical or simulated trading results.
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Chapter 4
Managed Futures—A Good Alternative
The definition of a successful speculator is one who picks the right time to die.Most people who trade futures and manage their own accounts lose money.This is especially true of speculators and first-time traders. The reasons are numerous and are recounted throughout this book.There is another alternative, and, if this book does nothing else, it may helpconvince you that a more sensible way for you to get started trading commoditiesis to do so by hiring a professional to do the trading for you. Professionals (thosewho make their living trading) also lose. Sometimes they lose a lot. But a largerpercentage of professionals than of individual small traders make profits.There are a variety of vehicles available for participating in futures markets.You could:a. Open your own account and manage it yourself.b. Open your own account and manage it yourself by relying on trading signals and guidance from a third party—usually a broker or advisor.27Copyright 2001 The McGraw-Hill Companies. Click Here for Terms of Use.
Chapter 4
c. Open your own account and have it managed by a third party called aCommodity Trading Advisor (CTA).d. Purchase an interest in a limited partnership or a commodity pool, whichis managed by a professional CTA.Commodity pools are groups of individual traders owning an interest in anaccount or group of accounts all trading identically. The organizers of such vehicles are called Commodity Pool Operators (CPOs) and must be registered withthe CFTC.CTAs in the futures world are also registered by the CFTC and act in a similar fashion to investment advisors in the world of stocks and bonds. CTAs aregranted authority by the client to make transactions on that person’s behalf.Collectively, CPO and CTA activity is known as managed futures activity, andthe limited partnership vehicles by which they collect and aggregate client fundsfor trading are generically referred to as futures funds.Managed futures vehicles, whether individually managed accounts openedwith a CTA or interests in limited partnerships, are an especially attractive meansof getting involved in futures investment vehicles because:a. Professional money managers have the expertise individuals often lack.b. Individuals often have too little capital to trade successfully.c. Individual traders lack the time needed to do adequate research and monitor the market. They are too busy working and making a living.d. Individual traders have little bargaining power in lowering commissions.Professional managers and CPOs with large chunks of money can get themost favorable brokerage rates.e. Individual accounts have unlimited liability and are liable for all losses inan account even if the losses exceed the amount of money in the account.Limited partners are liable only for the amount they invest in the partnership. They have limited liability.f. Professional managers usually have more timely access to information,research results, and the markets than do individuals.
GROWTH OF MANAGED FUTURESDuring the 1980s, the managed futures business grew rapidly from only a few million dollars in 1980 to nearly $45 billion at the end of 1999. Figure 4.1 shows thegrowth in money managed by CTAs included in Managed Account Reports (MAR)
28
Managed Futures—A Good Alternative
Figure 4.1 MAR Trading and Dollar Size of Qualified Universe504540$ Billion
353025201510
1998
1996
1994
1992
1990
1988
1986
1984
1982
0
1980
5
Source: MAR, Inc. Jan. 2000, NY, NY
Trading Advisor Qualified Index which represents dollars managed by CTAs whohave at least 18 months experience, manage at least $250,000, or who are actingas a CTA in a public fund. These numbers do not include many private pools, offshore pools, or individually managed accounts. It is likely that such private moniesbring the total to $45 billion to $50 billion or more (including so-called “guaranteed funds”).The number of funds has increased dramatically as well. In 1980, there wereonly about a dozen public funds—each only a few million dollars. Today thereare hundreds—many of them with several hundred million dollars. Nearly everymajor brokerage house, especially the large securities brokerage firms, have regular public offerings of such futures funds. Figure 4.2 shows the growth of moneyinvested in funds/pools as measured by MAR.
StructureGenerally futures funds are formed as limited partnerships. Securities laws prohibitthe use of mutual fund structures in futures. The limited partnership structure hasthe major advantage of limiting the liability of the limited partner investors to theamount of money invested. In that sense the partnership limits the losses in a man-
29
Chapter 4
Figure 4.2 MAR Fund/Pool Qualified Universe Index1000.00900.00
Value of $100
800.00700.00600.00500.00400.00300.00200.00
1998
1997
1995
1993
1991
1989
1987
1985
1983
1981
0.00
1979
100.00
Source: MAR, Inc. July 2000, NY, NY
ner similar to the limited liability of a corporate shareholder. Such partnershipsnormally are open for investment for several months and then are closed for goodor open only periodically thereafter. Very few are “evergreen,” i.e., regularly openfor new investment.Generally, a limited partner can sell a unit for its Net Asset Value (NAV) atthe end of any month or quarter by giving a few days’ or weeks’ notice to the General Partner (GP).The units are not tradable or transferable except under very unique circumstances where the GP gives permission. It is a violation of securities laws to buyand sell such units unless they are registered as publicly traded securities—a difficult and unduly burdensome task.Many futures funds provide a “money-back guarantee” if you remain aninvestor for a specified number of years, usually three or five years. Such “guaranteed” funds provide that the investor gets all of his original investment back atthe end of the partnership’s active life, plus the proportionate share of profits, ifany, from trading. If trading losses wipe out the initial trading capital before theguarantee period is complete, all futures trading stops, and the remaining moniessimply earn interest until the end of the guarantee period at which point the investor’sshare is paid back to him. To achieve this, the GP sets aside a certain portion of the
30
Managed Futures—A Good Alternative
initial investment and invests it in a high-quality security of an appropriate maturity. Often this is a U.S. government zero-coupon bond or its equivalent. As thisamount grows in value due to the compounding of interest earnings, it eventually,at maturity, reaches the value of the initial investment. The difference between theinitial set aside for the security and the initial investment is the amount available fortrading futures.The “guaranteed” futures funds have one wonderful advantage. They assureyou that you will get your money back at the end of X years and, therefore, the mostyou can lose is the interest or earnings on your money had you invested it somewhere else. The disadvantages are as follows:a. The loss of five years of interest earnings can be substantial. For example, if a five-year Treasury bond can be purchased today to yield 5 percent, at the end of five years each $1,000 you have invested will be worth$1,276 before taxes. Your risk in the guaranteed fund then over the fiveyears is 27.6 percent.b. There is no liquidity in these funds. If you want to sell your unit beforethe guarantee period is up, you generally cannot. That’s not the case witha share of stock or a bond. You can sell them at any time. Further, in casesthat do allow liquidity, there are often penalty fees that must be paid if youliquidate early.c. You pay a substantial fee to have the GP use most of the money to simply buy a zero-coupon bond or other security. For example, if five-yearinterest rates are at 5 percent, then out of every $1,000 you invest in afive-year guaranteed futures fund, about 78.4 percent will be invested inthe T-bond and only about 21.6 percent will be available for futures trading. Many people do not need to pay someone else substantial fees to buyT-bonds for them.d. The total return on guaranteed funds will be much lower than on otherfunds. Of course, your risk is also much lower because in non-guaranteed funds you could lose your entire investment. For example, if out of$1,000 invested, about 79 percent ($790) of the money earns 5 percent forfive years and 21 percent ($210) of it (the futures portion) earns 20 percent after all fees, the net average annual total return to the investor on theoriginal $1,000 is 8.7 percent. If you had all the money being traded bythe CTAs instead of only 21 percent of it, your return would have been 20percent.But look further. How realistic is that 20 percent return? What are the probabilities that the CTAs selected to manage the money will indeed return 20 percentafter all fees?31
Chapter 4
Suppose you think there is an 80 percent chance they will earn 20 percent anda 20 percent chance that the CTAs will lose all the trading capital and you willonly get your initial investment back, thus losing the interest earnings ($276) onthe original $1,000. If the $210 traded by the CTAs increases at a 20 percent compounded rate it will be worth about $522.50. The mathematical expectation onthis investment is:522.50 × .80 = 418.00276.00 × .20 = –55.20+362.80The mathematical expectation in the alternative investment in 5 percent Tbonds is $276.Would it be worth it if you think there is only a 10 percent chance the CTAswill return 20 percent per year and a 60 percent chance they will return 10 percentper year? The answer in this latter case is that the mathematical expectation wouldbe against you.
FeesThe fees associated with futures funds are often quite high, but when compared tothe costs of trading a small individual account or compared with fees associatedwith many other Wall Street products, they may not be so unfavorable. The feesin most such products will generally include the following:Sales Fees: Equal to about 1 percent per year of initial investment. Sometimesthese fees are taken out in a lump sum upfront. So for a 5-year fund they couldamount to a 5 percent or more front-end load.Brokerage Fees: Usually about 2 percent to 5 percent annually of the futures portion.CTA Management Fees: Usually about 2 percent to 3 percent annually of the
futures portion, plus 15 percent to 20 percent of profits. Sometimes profits aremeasured exclusive of interest earnings on the broker’s margin deposits.General Partner Fees: Usually about 1 percent to 2 percent annually for providing the guarantee. Sometimes the GP will also get a percent of profits.Administrative Fees: Usually about 5 percent annually. These fees cover audits,
legal fees, correspondence, organizational expenses, etc. Sometimes these feeswill be stated in dollar amounts rather than percentages. Thus, the larger the fund,the lower the percentage. Generally for large public funds, the organizational feescan run half a million dollars and annual administration fees half of that amount.In total, the fees associated with public funds will generally range between10 percent and 15 percent annually for the futures portion and between 7 percentand 8 percent annually on the net asset value (NAV) of guaranteed funds.32
Managed Futures—A Good Alternative
Clearly, therefore, in order for CTAs to return 20 percent annually after allfees, they have to perform extraordinarily well. So well, in fact, that you shouldnot count on it.
PerformanceThere were 2,811 CTAs registered with the NFA and CFTC at the end of 1999.However, there are only a couple hundred that have been acting as CTAs for 10years or longer. In fact, the registration category of CTA did not appear until thelate 1970s. Hence, you are dealing here with a very young “industry” and groupof people, most of whom have very short track records.Many of the 2,811 registrants are brokers who have the CTA registration asa convenience and an adjunct to their brokerage businesses. This, of course, raises potential conflicts of interest if brokers collects both brokerage fees and CTAfees for their work as CTAs. Only about 800 to 1,000 of the 2,811 registrants havepublished track records that reveal how well they have actually done in managingtheir own and other people’s money. There are several organizations that collectand publish these track records and the performance records