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Alpha The Benefits Of Notional Funding, Unique To Managed Futures

by Jessica Darmoni
3 months ago


Hehmeyer Trading + Investments believes there are many ways to approach Managed Futures that will bring innovative products to the market place and in this blog, we’d like to explore one of those ways: Notional Funding

One of the many benefits and most efficient ways of investing in Managed Futures includes trading an account with notional funds.  This is when an investor leverages their cash investment for a potentially higher return.  Notional funds represent the difference between the minimum account size or investment, and the amount of cash an investor deposits in the trading account.

Example:                        Minimum (nominal) Investment:  $1,000,000

                                       Cash Invested:                                $   200,000

                                       Notional Funds:                              $   800,000

The efficiency lies in leveraging the cash in the trading account, which is typically based on the margin commitment needed to trade the account, and enabling a “cushion” for market fluctuations.  Further, there is no borrowing costs (or interest) associated with notional funding compared to charges when buying stock on margin or real estate investments.

While there is additional risk in utilizing notional funds, used with caution and carefully monitored, the investment can be advantageous to an investor.  In fact, combining non-correlated managers in a leveraged fashion can offer an intelligent use of leverage, which delivers cash efficiency to the investor.

For example, the trading results of an investor that uses notional funding versus an investor that fully funds an account has the exact same dollar profit or loss, however, their percentage gain or loss will look different as shown below:

Fully Funded Investor:

$1,000,000 + $50,000 profit = 5% profit

Notionally Funded Investor:

Cash Invested:  $200,000 + $50,000 profit = 25% profit

Of course, if the above example was a loss to the trading account, the dollar loss would be identical for both a fully funded account versus a notionally funded account. 

Through the Hehmeyer Investment Platform, investors can invest in low volatility traders that are carefully selected, leveraged and monitored by the Managed Futures Team at Hehmeyer Capital Management .  Investors can consider investing in one trading strategy or a blended diversified portfolio. 

For more information about notional funding, other ways we approach Managed Futures or how we leverage our trading strategies, please email Roxanne Bennett or register for access to the Hehmeyer Investment Platform at www.hehmeyer.com

 

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