Chapter 17 CAIA Flashcards - Macro & Managed Future Funds
Counterparty Risk
Counterparty risk is the uncertainty associated with the economic outcomes of one party to a contract due to potential failure of the other side of the contract to fulfill its obligations, presumably due to insolvency or illiquidity.
Discretionary Fund Trading
Discretionary fund trading occurs when the decisions of the investment process are made according to the judgment of human traders.
Systematic Fund Trading (Black-Box Model Trading)
Systematic fund trading, often referred to as black-box model trading because the details are hidden in complex software, occurs when the ongoing trading decisions of the investment process are automatically generated by computer programs.
Technical Analysis
Technical Analysis relies on data from trading activity, including past prices and volume data.
Fundamental Analysis
Fundamental analysis uses underlying financial and economic information to ascertain intrinsic values based on economic modeling.
Thematic Investing
Thematic investing is a trading strategy that is not based on a particular instrument or market; rather, it is based on secular and long-term changes in some fundamental economic variables or relationships—for example, trends in population, the need for alternative sources of energy, or changes in a particular region of the world economy.
Market Microstructure
Market microstructure is the study of how transactions take place, including the costs involved and the behavior of bid and ask prices.
Quantitative Macroeconomic Models
Quantitative macroeconomic models can be empirical models of how markets have behaved (i.e., positive models) or theoretical models of how they ought to behave (i.e., normative models). The models vary in size and sophistication. However, the importance of experience, intuition, and data gathering should not be underestimated.
Three Primary Risks of Macro Investing
Market risk
Event risk
Leverage
Three Ways to Acces skill based investing in the managed futures industry
Public commodity pools
Private commodity pools
Individually managed accounts
Commodity Pools
Commodity pools are investment funds that combine the money of several investors for the purpose of investing in the futures markets
Public Commodity Pools
Public commodity pools are open to the general public for investing in much the same way that a mutual fund sells its shares to the public. In the United States, public commodity pools must file a registration statement with the SEC (Securities and Exchange Commission) before distributing shares in the pool to investors. An advantage of public commodity pools is the low minimum investment and the high liquidity that they provide for investors, allowing them to withdraw their investments with relatively short notice (compared to other hedge fund strategies).
Private Commodity Pools
Private commodity pools are funds that invest in the futures markets and are sold privately to high-net-worth investors and institutional investors. They are similar in structure to hedge funds and are increasingly considered a subset of the hedge fund marketplace. Commodity pools are managed by a general partner. In the United States, the general partner for the pool must typically register with the CFTC and the NFA as a CPO. However, there are exceptions to the general rule.
Commodity Trading Advisors
Commodity trading advisers (CTAs) are professional money managers who specialize in the futures markets.
Slippage
Slippage is the unfavorable difference between assumed entry and exit prices and the entry and exit prices experienced in practice.
