Investors that actively manage their retirement accounts know that there are many restrictions on what they can do. Rules and regulations are not the same for your retirement nest egg as they would be for your everyday accounts. When it comes to investing in managed futures, investors may mistakenly assume that the rules that apply to their IRA equity accounts would also apply to an IRA account if it invests in managed futures. We will examine a few IRA restrictions in equity accounts, and address how those restrictions affect a managed futures account.
You cannot sell stocks short in your IRA. You would have to buy an inverse ETF to go short. In futures trading, you can sell short any futures market (the same way you can go long the same market). Therefore, when investing with commodity trading advisor (CTA), the CTA has the ability to go both long or short in your account as they deem fit. Almost all CTAs go short just as much as they go long – it’s a common investment strategy in managed futures.
Selling Naked Options
You can trade options in an equity IRA account, but you are not allowed to sell naked calls or puts. When trading futures, you can sell naked calls or puts on futures in your IRA account. Furthermore, when investing in CTAs via managed futures, some CTAs may employ strategies that call for naked option selling. While these naked selling strategies are risky, they are permitted in your IRA account.
Buying on Margin
Buying stocks on margin in your IRA account is not allowed. While some brokers offer limited margin for IRAs, it is only there to manage option strategies and avoid cash settlement issues. When investing in managed futures, futures contracts are inherently leveraged themselves, therefore, IRA investments in managed futures are already leveraged. Furthermore, you can use notional funding in your IRA account to invest with CTAs (the same way you can with a non-retirement account), and this allows an investor to further control the amount of leverage they want to use in their managed futures portfolios.
The above three are the most common differences between a equity IRA brokerage account, and a managed futures (or a self-directed futures trading account) IRA account. Most investors are not aware that these differences (or benefits) exist when investing in managed futures.