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An October to Forget

November 7, 2011

 

Ahh, to be back just a short month ago on October 4th.  Global markets were in a pronounced down trend, with the S&P 500 down below 1100,  Crude Oil down near $75, and managed futures (per the Newedge CTA index) enjoying a gain of 1.29% through the first four days of the month.

The stage was set for one of managed futures famous moves – performing well while the rest of the world was in crisis mode.  Here they were- short nearly everything (stocks, energies, grains, and foreign currencies) and long bonds (typically a boon during crisis periods) while the world appeared on the brink of collapse due to the never-ending problems in Europe.  

With managed futures position set-up coming into October, a 2008-like market crisis with the Dow heading back down to 8000 or so to close out the year would have likely meant another big 4th quarter for managed futures. Managed futures have historically been great Q4 performers, earning 4.54% on average in Q4- versus an average of .79% in all other quarters. 

 

Disclaimer: Past performance is not necessarily indicative of future results. Futures trading is complex and presents a risk of substantial losses. As such, it may not be appropriate for all investors.

The First Shoe Drops

But, alas- it was not meant to be this time around.  The markets rallied significantly after October 4th- going on to set a blistering pace for the rest of the month, with Crude Oil closing higher 11 out of 19 trading days following.

This rally was exactly what most managed futures programs did not want to see, being set-up on the short side coming into the month. Indeed, the rally caused losses for most managers. We touched on what a trend following type model exit looks like in a recent blog post, and October saw such exits across a diverse set of markets in managed futures portfolios, pushing what looked like a promising October on the morning of the 2nd trading day of the month into a loser of a month. 

 

Disclaimer: Past performance is not necessarily indicative of future results. Futures trading is complex and presents a risk of substantial losses. As such, it may not be appropriate for all investors. 

Would managed futures rather have seen further downside in October? Definitely. Is the large reversal and resulting losses a terrible result for managed futures? No- at least, not in our eyes. We’ve said it before and we’ll likely say it again: this, in our opinion, is what managed futures performance looks like.

What do we mean by that?  Nothing more than there will be ups and downs. There will be times when the trends reverse and you lose money. That, not a smooth upwards sloping line, is what managed futures will really look like. In this case, managed futures indentified the trend, got into positions to profit from that trend should it continue, and then got out when the trend reversed.  That is how the bulk of managed futures programs operate.

So, at the end of the day, while we can bemoan managed futures losing money in October, we can’t fault them for doing so.  They were there, lined up in the right position and ready to pounce on further downside; it just didn’t happen.

The problem is, this is the fourth time in the past two years where there has been a major trend reversal just as programs have gotten into a ‘full portfolio’ of positions (Mar 09, Dec 09, May 11, and Oct 11). The end result of those trend reversals – managed futures as an asset class back to the levels they were nearly three years ago in January 2009. Further, what is causing some to consider this reversal a little more important than most is that it leaves the Newedge CTA index six months and -7.47% removed from its last equity high (April 2011).

  

Disclaimer: Past performance is not necessarily indicative of future results. Futures trading is complex and presents a risk of substantial losses. As such, it may not be appropriate for all investors.

So what in the world is wrong with managed futures?  

Some of what is happening is the normal cyclical nature of managed futures we highlighted in a past newsletter, concluding that the average cycle of run-ups, drawdowns, and the climb back to run-ups is about three years.  This explains in part why there are such down periods to begin with. As for why we’re basically flat after 2.5 years, we can chalk that up to still working off the very poor 2009 conditions for managed futures resulting from a massive drop in volatility following the historic increase in volatility in 2008.  

At the end of the day, managed futures have been in position to do what they do best – riding market trends as they continue on during four separate occasions in the past 2.5 years. Those trends, however, simply haven’t continued on. Managed futures managers aren’t doubling down hoping the next trend will continue, or switching to a different strategy. They are doing what they do, knowing that maybe only 1 out of 5 set-ups such as we’ve seen will bear fruit. The trick is to not lose the farm when the set-ups don’t bear fruit – which most managed futures programs (and the index as a whole) have managed to do (being flat over this difficult period instead of down substantially). Contrast that with what happens to stocks or hedge funds in a difficult environment (market sell-off), and, in our biased opinion, it's not much of a competition.

One of our favorite bloggers- Ritholtz- has highlighted the importance of emphasizing process over outcome when it comes to making investment evaluations, and we feel October, and indeed the past 2.5 years is a prime case of this. The process worked just as it is supposed to – putting managed futures right in the perfect position to make money. The outcome just didn’t happen the way we would have liked. As convoluted as it sounds, we would rather see managed futures lose money in this situation than make money, because then we know what the process is and we know where the returns are coming from. If the outcome was beneficial in October (read: gains), then the process would be problematic (or unrepeatable).

And there goes the second shoe...

So, there we were towards the end of October, looking at a losing month for managed futures and likely a losing year because of it (or at least not very positive), talking with clients about the market environment, when, out of left field, in comes the MF Global debacle- taking what was a bad month for those in the industry into terrible territory.  

For those of you who have had the luxury of not paying attention to what has been happening, here's the gist of it: MF Global's stock tanked, forcing them to declare bankruptcy while revealing they were missing millions in client segregated accounts, throwing the entire industry into chaos. Here's the full story...

MF Global was formerly one of the oldest and most respected clearing firms in the business that decided to enter the world of investment banking when Jon Corzine- former New Jersey Governor and CEO of Goldman Sachs- came on board. They placed a series of highly leveraged bets on European debt, with most of the positions not reaching maturity until 2012. When the positions were discovered by regulators (who had already chastised the firm for inadequate capitalization earlier this year), they required that they disclose the information to the public, and, during their 3rd quarter earnings reveal on October 25th, MF Global did just this. The risky bet tanked investor confidence, leading to a sell-off in the stock of over 70% in one week.  By that Friday, it looked like bankruptcy was all but inevitable.

While the markets may have been anticipating the declaration of bankruptcy, what they were not expecting was the bombshell that accompanied the filing: hundreds of millions of client segregated account funds were missing. Though the figures have fluctuated in the chaos since, the shortfall looks like it stands at over $633 million. In turn, the exchanges banning MF Global from conducting business, and between the filing and the missing funds, the segregated accounts were frozen- meaning no MF Global clients could access their funds or alter their market positions from the time of filing.

After days of clients floundering in limbo, the CME finally stepped up to the plate and brokered a deal with the bankruptcy trustee to release the MF Global clients' already posted margin. Though most excitement over this development was largely overblown (after all, it was only 26% of the funds in consideration, and it wasn't actually in the possession of MF Global anyway, but the CME), any joy experienced was short-lived. The accounts were seemingly randomly distributed to a variety of clearing firms- some of them not even on the publicly distributed list of pre-approved clearing firms. Clients, even as of Monday morning, were not necessarily aware of where they wound up, and CTAs were completely in the dark as to where their client' accounts were located. The transfer did not include the transfer of power of attorney letters, either, which meant that the trades could only be altered by the client or the broker- not the CTAs.

Then the CME announced that, even with this transfer, the accounts would be frozen until Wednesday morning as they attempted to insure that there had been no errors in the transfer process (though stories have surfaced indicating there were plenty of them- particularly as they related to internationally held accounts). Their timing was fantastic, as Wednesday morning is also the slated time for the release of one of the more important grains reports this year.

The CME hasn't been the only exchange to botch this situation. On the Eurex, MF Global clients were informed that their positions had been ad hoc liquidated, without regard for whether the clients wanted that, had already placed an order to liquidate, or an offsetting position had already been secured. Now there are reports saying that the bulk of MF Global client positions in Europe are still open. It's murky waters, to be sure.

Corzine has resigned, promising he would not take advantage of his contract-guaranteed golden parachute. CFTC Chairman Gary Gensler has had to recuse himself from the investigation after past business and political connections to Corzine were revealed. The CME, CFTC, SEC and FINRA have all come under fire for failing to catch the segregated account shortfall. Tangentially related firms like Jeffries have found themselves on the defensive as investors began to question what kind of European exposure other Wall Street entities may have.

Despite attempts by some to get the bankruptcy trustee to release the segregated funds, it has been made clear that the money is going nowhere until more is learned about the missing funds. The industry is hoping and praying that the money is magically found in some overlooked account any minute now, or that, at the very least, the available funds are released to clients shortly. No one wants to see a repeat of the Sentinel saga, with litigation over funds still underway four years later.

The financial media has had a field day reporting on the saga- publishing market-moving headlines and retracting them hours later. The one thing not being covered there, or even really addressed by the regulators or exchanges, is how the whole mess has impacted CTAs.

They have not been able to liquidate trades until today, but the markets have continued to move, presenting the chill-inducing possibility of losses outside of normally accepted losses. Moreover, CTAs were not able to place new trades for these clients, as the funds needed to do so were locked up at MF Global. These limitations mean that the performance of MF Global client accounts will likely deviate from the performance of other clients. How does that factor into their overall October performance and their presentation of it to investors moving forward? We haven't heard an answer.

But it's not just the returns of clients that have been frozen; the managers themselves aren't getting paid right now. Without access to those accounts, they can't collect management or incentive fees, and may not be able to do so for weeks or months (or longer, if the Sentinel case is any indication). For smaller managers with less of a cushion, depending on what portion of clients held their accounts with MF Global, this could compromise their ability to pay their staff or keep operations going. The same goes for brokerage firms that were working with MF Global. In our opinion, this means the industry will see a lot of companies closing up shop in the coming months.

The situation is still very fluid. We encourage you to subscribe to our blog to ensure you're getting the latest coverage as it happens.

Consequences for Bare Feet

MF Global clients have been pulling their hair out, but the drama has had an impact for the entire industry- shaking confidence in an asset class that once seemed beyond reproach. What does this mean in the long term? The future is rather hard to discern right now, as the problem isn’t over yet. It’s hard to see how much flood damage there is when the water is still rising. That being said, there are several things to consider.

For one, this is quite possibly the biggest PR problem in the history of the industry. While the Refco and Sentinel scandals in years past had rattled cages, neither were quite as big or drawn out. With Refco, segregated accounts were released almost immediately, and with Sentinel, the case was so small that many figured it would never happen at one of the larger firms, since their size would make such discrepancies hard to keep under the radar. It is entirely possible that some investors will flee the asset class, and that we may see a fair amount of individual brokers and small brokerage firms going out of business. Poor monthly performance like we saw in October can scare off uneducated investors, but a scandal? In our minds, at least some loss of business was a given from day one of the MF Global fiasco.

Unfortunately, what was already a disaster got much worse in a hurry as a result of some of the worst crisis communication strategy execution in recent history (including the BP oil spill travesty and their CEO's response- and that's saying something). Regulators and exchanges, by and large, have been far too silent throughout the whole mess, leading to rampant speculation, confusion and fear for market participants. When they have even attempted to communicate, their messages have been so poorly constructed that they've been widely misinterpreted, requiring repeated clarification. Brokers and managers are not exempt from this criticism, either. While many were often just as confused as their clients by the actions of the regulators and exchanges, their silence only served to exacerbate the problem.

Moreover, the solutions that have come out joint efforts of regulators and the exchanges have failed to take the market impact of managed futures into account. CTAs have made up a large portion of the CME's business over the past several decades, and yet, with the implementation of this mass clearing account transfer of margin funds, zero infrastructure was put in place to address the unique challenges faced by CTAs. Zero clarification has come from the regulators handling the situation as to how the CTAs should handle performance issues stemming from the complications the MF Global freeze has created. By and large, there has been zero consideration for CTAs, and to us, that is inexcusable.

Compound all these issues with poor October managed futures performance, and it's no wonder the industry is on edge.

Shoe Shopping, or the Silver Lining

During times like these, it's easy to focus on the problems at hand. In some ways, it's necessary. Until some of these issues are resolved, opportunity for progress is limited. That being said, there are a few potentially positive consequences to consider.

For one, managed futures as an asset class (and, indeed, the individual managers themselves) have been in drawdown territory before, and have been able to recover from those drawdown periods- and then some (Disclaimer: Past performance is not necessarily indicative of future results. Futures trading is complex and presents a risk of substantial losses. As such, it may not be appropriate for all investors). Along those lines, the biggest silver lining we see is an opportune entry point into traditional, trend following-type managed futures programs at these levels.

The current drawdown in the Newedge CTA index stands at -7.47%, just above the average of all major drawdowns since 2000 at -7.24%. The worst max DD for the index was just over -10%, for reference.

 

Disclaimer: Past performance is not necessarily indicative of future results. Futures trading is complex and presents a risk of substantial losses. As such, it may not be appropriate for all investors.

For two, this event should lead to better regulation to protect segregated account funds. The implosion of MF Global has highlighted the competing priorities that exist in a world where investment banking and futures clearing are taking place under the same roof.  Corzine was taking tremendous risks that he might have been able to get away with had MF Global been an investment bank alone, but the risk taking, in this instance, killed investor confidence, draining their capital and liquidity in such a rapid manner that- somehow, somewhere- segregated accounts wound up short.  

As we indicated in a blog post last week, we truly believe this is an isolated problem that stemmed from the disconnect between MF Global's responsibilities to their clients and their profit-making goals. This is why we encourage investors to pursue relationships with FCMs that are focused on futures clearing, and not with larger investment banks. Definitely what we'd call learning the lesson the hard way- but an important lesson nonetheless. That being said, the hope is that, if investment banking and futures clearing are going to continue to be handled by the same entities, that regulations will be modified to better protect the segregated accounts caught in the mix.

But reform with a goal of protecting customer segregated funds extends beyond the regulation itself; it also relates to the way these firms are monitored. There were four- count 'em, four- regulatory bodies charged with monitoring the actions of MF Global. None of them caught this problem in time. Price Waterhouse Cooper- considered one of the "big four" auditing firms in the world- also didn't notice the discrepancy during a recent audit. This collective failure may spur reforms in the way clearing firms are monitored, and perhaps create more stringent requirements for the kinds of information they are required to make public.

Bottom line? October was ugly. Between volatility chopping away at performance and the collapse of MF Global shaking the industry to its core, it was certainly a month many of us won't soon forget- even if we wish we could. It is a complex and challenging landscape we see in front of us, but it is also one with many opportunities for both industry participants and investors to make beneficial changes. At this point, we're hoping that, this time next month, our newsletter will be giving thanks for a November bountiful with positive developments.

 

IMPORTANT RISK DISCLOSURE


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Feature | Week In Review: An About Face in October

The news ticker last month was dominated by ever fluctuating headlines out of Europe, with the MF Blowup wielding its influence during October's final days. It was also witness to a fairly pronounced reversion of the downward trends we saw coming into the month within the first week. As a result, despite choppy volatility, the S&P 500 finished October up 10.9% (its best monthly performance since 1991), while the Nasdaq was up 11.14% and the Dow Jones up 9.54%. U.S. treasuries slipped behind in turn, with Ten Year Notes down .79% and 30 Year Bonds down 2.52%.

The U.S. Dollar moved in tandem with treasuries, down 3.50%, while the Euro, with confidence in Europe's ability to handle their crisis burgeoning near the end of the month, was up 3.26%. the British Pound was up 3.31%, and the Swiss Franc was up 3.61%. The Japanese Yen was definitely noteworthy, as one of Japan's largest monetary interventions to date brought the currency down a mere 1.28%. We'll be watching to see just how long the impact of this intervention (the third so far this year) is able to last.

In metals, as noted on our blog this week, Gold resumed its ascent, picking up speed near the end of the month to finish up 6.34%. Silver had an even more impressive surge, up 14.20% over the month. Copper, after a dizzying slide in September, regained some ground with a 15.23% jump. In comparison to these numbers, Platinum and Palladium, up 5.51% and 5.96% respectively, seemed mild-mannered.

In energies, Crude was up 4.45%, and RBOB Gasoline jumped 5.32%. Natural Gas, despite what some had hoped would be season pressure, gained 1.84%, while Heating Oil was up 10.37%. Grains saw some interesting moves of their own. Corn was up 9.20%, while Wheat was up a mere 3.12% and Soybeans were up 2.76%. Meats were headed downward, with Live Cattle down 3.30% and Lean Hogs down .37%. Moves in softs were more subdued, with Sugar up 1.90%, Cotton up 2.10%, and Cocoa up 3.37%. The exception to the rule was Orange Juice- up a whopping 18.34% in October alone.

Trading Systems

October's volatility may have caused some turmoil for trend followers, but generally speaking, it was pretty good to day trading systems. Compass SP was the big winner for the month, up $1495.82 over the course of October, followed closely by Upper Hand ES, up $1335.00. Also turning in positive performances were BounceMOD EMD up $700, PSI! ERL up $315.00, and Compass ES up $142.50. The lone struggler was BounceMOD ERL- down -$179.00 on one trade.

Swing systems, on the other hand, were more of a mixed bag. On the winning side was Bam 90 ES up $4,477.50, TurningPoint X2 ES up $1,560.00, Bam 90 EMD up $1,481.66, MoneyBeans S up $560.42, Bam 90 YM up $368.33, MoneyMaker ES up $232.50, and Bounce ERL finishing off the group up $20.00. The losers this month were a little more severe. Losses started off small with Bounce EMD down a mere -$20.00, but losses jumped from there. Jaws US 60 was down -$609.50, Jaws US 400 down -$780.00, TurningPoint ES down -$805.84, BAM 90 Single Contract ES down -$1,845.00, Bam 90 NQ down -$2,423.12, Bam 90 ERL down -$2,476.76, Strategic ES down -$2,749.27, and Tzar ES down -$3,465.68, AG Mechwarrior ES down -$4,030.00. The biggest losers this month were BAM 90 M Squared ES at -$8,805.75, and Strategic v2 SP down a massive -$13,115.90.

Managed Futures

As we discussed in the main portion of the newsletter today, the reversal of downward trends near the beginning of October set up a month heavy in losses for much of managed futures. Option traders were the exception, with several putting in notable performances, but trend followers, in particular, struggled to regain their footing. Should November bring about a set of steady trends (which we're hoping for) look for trend followers to make a comeback.

Program

MTD*

All Time MaxDD**

Strategy Type

AFB LLC FortyEighter Gold Options

8.74%

-44.10%

Option

Bluenose Capital Management LLC - BNC BI

5.22%

-5.77%

Option

White River Group Diversified Option Writing

3.81%

-15.08%

Option

Cervino Diversified 2x

3.41%

-17.32%

Option

LJM Partners Ltd. Aggressive

3.03%

-63.83%

Option

Rosetta

2.84%

-39.67%

Agriculture

GT Capital

1.92%

-11.79%

Short-term Systematic

Cervino Diversified Options

1.54%

-8.34%

Option

Cervino Gold

0.65%

-6.69%

Discretionary

Paskewitz

0.36%

-18.21%

Systematic Specialty

HB Capital

0.23%

-13.79%

Option

NDX Shadrach

0.15%

-19.38%

Agriculture

NDX Abedengo

0.09%

-10.28%

Agriculture

Bouchard Capital, LLC Short Term Multi Commodity

-0.01%

-13.79%

Short-term Systematic

Emil Van Essen, LLC Commodity Only (Low Min)

-0.17%

-36.21%

Spread Trading

Emil Van Essen, LLC Combined (Low Min)

-0.19%

-36.21%

Spread Trading

Auctos Capital Management

-0.51%

-12.25%

Systematic Multi-market

Mesirow Absolute Return

-0.58%

-1.56%

Discretionary

Kottke Associates, LLC Kottke - Willis Enhanced

-0.84%

-6.11%

Discretionary

Bel Air Capital Asset Management

-0.91%

-24.05%

Systematic Multi-market

FCI OSS

-1.12%

-52.73%

Option

Dominion Capital Management

-1.17%

-15.22%

Short-term Systematic

FCI CPP

-1.31%

-18.73%

Option

2100 Xenon Fixed Income Program:

-1.47%

-7.46%

Systematic Specialty

2100 Xenon Managed Futures (2x) Program:

-1.50%

-18.40%

Systematic Multi-market

Integrated Managed Futures Corp. IMFC Global Concentrated

-1.97%

-10.31%

Systematic Multi-market

Global AG

-2.10%

-17.57%

Agriculture

Futures Truth MS4

-2.14%

-9.18%

Systematic Multi-market

Hoffman Asset Management, INC. Managed Account

-2.15%

-19.38%

Systematic Multi-market

James River Capital Corp. - Navigator

-2.72%

-18.60%

Systematic Multi-market

Integrated Managed Futures Corp. IMFC Global Investment Program

-2.77%

-11.89%

Systematic Multi-market

Bluenose Capital Management LLC - BNC EI

-3.19%

-9.98%

Option

Tanyard Creek Capital

-3.73%

-14.17%

Agriculture

Quantum Leap Capital

-4.40%

-24.44%

Short-term Systematic

P/E Investments FX Strategy - Standard

-4.52%

-15.01%

Systematic Specialty

Roe Capital Management - Monticello Spread

-4.67%

-21.16%

Systematic Specialty

Clarke Capital Management, Inc. Global Basic

-4.89%

-46.49%

Systematic Multi-market

Futures Truth SAM 101

-5.56%

-12.62%

Short-term Systematic

Crescent Bay BVP

-5.65%

-32.69%

Option

Covenant Capital Management Aggressive

-5.88%

-20.41%

Systematic Multi-market

Robinson-Langley Capital Management, LLC Managed Account

-6.06%

-23.68%

Systematic Multi-market

Attain Portfolio Advisors - Strategic Diversification Program

-6.61%

-24.39%

Systematic Multi-market

Clarke Capital Management, Inc. Global Magnum

-6.69%

-41.50%

Systematic Multi-market

Accela Capital Management Global Diversified

-8.72%

-18.26%

Systematic Multi-market

Lenapi Advisors, LLC Standard

-11.46%

-22.82%

Systematic Multi-market

Clarke Capital Management, Inc. Worldwide

-23.80%

-30.83%

Systematic Multi-market

 *Max DD= A drawdown is the “pain” experienced by an investor in a specific investment. As an example, an investor starting out with a $100,000 account who sees it fall down to $80,000 before it runs back up to $110,000 saw a $20,000 loss ($100K – $80K), which would equal a -20% ($20K/$100K) drawdown. The so called Maximum Drawdown (Max DD) is the worst such peak to valley down period for an investment.

**Disclaimer: Past performance is not necessarily indicative of future results.  These performance numbers are calculated using the liquidating value of a single client at Attain trading the listed program, and are believed to be representative of all similar clients invested in the program.  A 20% incentive fee and 2% annual management fee are deducted from all profitable months, regardless of whether the program is at a new equity high.  These numbers may vary from the actual performance numbers presented by the CTA upon completing their accounting for the month gone by, and should not be considered apart from the performance numbers listed in the disclosure document for the program listed.

 

IMPORTANT RISK DISCLOSURE
Futures based investments are often complex and can carry the risk of substantial losses. They are intended for sophisticated investors and are not suitable for everyone. The ability to withstand losses and to adhere to a particular trading program in spite of trading losses are material points which can adversely affect investor returns.

Past performance is not necessarily indicative of future results. The performance data for the various Commodity Trading Advisor ("CTA") and Managed Forex programs listed above are compiled from various sources, including Barclay Hedge, Attain Capital Management, LLC's ("Attain") own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The dollar based performance data for the various trading systems listed above represent the actual profits and losses achieved on a single contract basis in client accounts, and are inclusive of a $50 per round turn commission ($30 per e-mini contracts). Except where noted, the gains/losses are for closed out trades. The actual percentage gains/losses experienced by investors will vary depending on many factors, including, but not limited to: starting account balances, market behavior, the duration and extent of investor's participation (whether or not all signals are taken) in the specified system and money management techniques. Because of this, actual percentage gains/losses experienced by investors may be materially different than the percentage gains/losses as presented on this website.

Please read carefully the CFTC required disclaimer regarding hypothetical results below.

HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.