Hedging Services
Risk Management with Futures Trading
Futures trading involves significant risk and loss of capital. The key reason for this is the amount of leverage that is in use. Entering a futures position requires a margin deposit, or a “security deposit” to ensure performance of the contract and to cover an “average trading’s day loss”.
It is this significant leverage and the ability to take positions in either direction that makes futures trading an instrument of choice when it comes to hedging a portfolio.
Hedging a portfolio is a process that matches an offsetting position of futures and/or options on futures, that provide a degree of negative correlation, to the price movements of the underlying portfolio. The intended result is to combine the hedging position to the portfolio for an overall risk adjusted return. The result is the reduction of a portion of volatility.
As a registered Commodity Trading Advisor (CTA), we will follow the engagement process and determine a customized strategy based on your current risk exposures and holdings. This process will be used to determine the degree of hedging to be applied entirely based on client preferences. Coordination with outside advisors is possible.
Similar to the Investment Advisory offering, we do not take custody of the funds dedicated to this service. In this segment, we work with a CFTC registered Introducing Broker (IB) and/or Futures Commission Merchant (FCM). The IBs and FCMs that we work with are members of NFA. It is the FCM that will hold the funds, issue trading confirmations and monthly statements on the account. We will have a limited power of attorney authorizing us to make the trading decisions and deduct management fees from the account.
Full details outlining risks, suitability, and required documents can be found in the Disclosure Document. To request this, send an email to info@mercantileadvisorsllc.com and in the body include your name, address and telephone number and a state your request for the current disclosure document.
Mercantile Advisors, LLC is a member of National Futures Association and registered with the Commodity Futures Trading Commission as a Commodity Trading Advisor. Our NFA number is 0527067 and accessing the NFA BASIC website will verify our registration and history.