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very similar to a mutual fund with the difference that various futures make up the pool rather than stocks or bonds. The money to operate the pool comes from the participants who together share the pool. A commodity pool is overseen by a commodity pool operator (CPO) who normally relies on an independent commodity trading advisor (CTA) to make trading decisions for the pool, similar to a fund manager with respect to a mutual fund. Prior to making an investment, participants must receive a disclosure document (similar to a mutual fund prospectus) which contains all the details about the pool. This document will outline many items such as the objectives, trading strategies, risks, and costs of the pool. Some of the benefits of investing in commodity pools over directly trading futures are: possible lower costs, diversification among many futures, sharing the risk for losses (but of course sharing the profits as well), professional management, and generally limited risk where in most cases the maximum loss per participant is limited to the amount invested in the pool (i.e., no margin calls).

Final Notes

I hope that this chapter has given you a fair overview of what goes on in the esoteric world of futures. Becoming a proficient futures trader takes years of experience and lots of research. Of course, that is why most of us rely on brokers to do most of the hard work. But if you decide to get involved in the futures markets, I hope at least that this chapter has helped you with the basics. There is also a publication by National Futures Association (NFA) titled “Understanding Opportunities and Risk in Futures Trading” — recommended for anyone who wants to trade futures.

Finally in figuring out your cost of trading futures, there are two main areas you must always consider: commissions and taxes. Every …