This simply means pulling your resources together in a pool with others and then a good and profitable trader appointed to trade the account. This is similar in concept to a common stock mutual fund. It is the only method of participation in which you will not have your own individual trading account. Since your money will be combined with that of other participants in the pool, and in effect, traded as s single account, there will be an agreement on profit and loss sharing ratio in proportion to each participant’s investment in the pool.
One potential advantage of this method is greater diversification of risks than you might obtain if you were to establish your own trading account. Another is that your risk of loss is generally limited to your investment in the pool, because most pools are formed as limited partnerships. And you won’t subject to margin calls.
It is worthy of note however, that the risks which a pool incurs in any given transaction are no different than the risks incurred by an individual trader. The pool still trades in future transaction which are highly leveraged and in markets which can be highly volatile. Online Trading The pool can as well suffer substantial losses just like an individual.
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A major consideration, therefore, is who will be managing the pool in terms of directing its trading. There are some pools that operate independently of the brokerage company, while some other brokerage companies, in order to serve those customers who prefer to participate in a pool, establish relationships with one or more trading pools or operate theirs. But ensure always that the broker is regulated by FSA in the United Kingdom or CFTC in the United States of America.
In most instances, a Commodity Pool Operator (CPO) cannot accept your money until it has provided you with a Disclosure Document that contains information about the pool operator, the pool’s principals and any outside persons who will be providing trading advice or making trading decisions. It must also disclose performance records, if any, of all persons who will be operating or advising the pool ( or, if none, a statement to that effect). Disclosure Documents contain important information and should be carefully read before you invest your money. Another requirement is that the Disclosure Document advises you of the risks involved.
In the case of a new pool, there is frequently a provision that the pool will not begin trading until (and unless) a certain amount of money is raised. Normally, a time deadline is set and the CPO is required to state in the Disclosure Document what the deadline is (or, if there is none, that the time period for raising funds is indefinite). Be sure you understand the terms, including how your money will be invested in the meantime, what interest you will earn (if any), and how and when your investment will be returned in the event the pool does not commence trading.