# What is APS Pricing in Managed Futures?

When it comes to your managed futures investments, you may have wondered how a CTA is able to ensure that all their clients have the same rate of return from month to month.  Unlike a fund investment, when investing through a separately managed account, CTAs must ensure that all of their clients receive the exact same price for all of their trades.  How can a CTA that has to do hundreds of future contracts, while the market may be moving rapidly, ensure that they execute all their orders at the same price? The answer is that they can’t.  However, the APS pricing system is used to guarantee that all clients are receiving the exact same trade price.

APS Pricing

APS stands for average price system or average pricing system. The average price system averages the price across all fill prices within a specific contract, and then assigns one average price to each contract.  The contracts are then distributed to each client based on their investment account size.

For example, let’s say a CTA that trades Corn would like to go long Corn today at 365.00.  Based on their assets under management, the CTA calculates that they must go long (or buy) 100 futures contracts to fulfill all their clients.  If the CTA places an order to buy 100 futures contracts at 365.00, it does not necessarily mean that they will get filled on all 100 contracts at that price.  Let’s say after placing the order, the CTA gets filled at 365.00 on 50 contracts and 365.50 on the remaining 50 contracts.  While the difference in price on the fills only translates to a monetary difference of \$25/contract, the CTA still must ensure that each client receives the exact same price, resulting in the same rate of return.

In the above example, the average pricing system would average the price across the 100 contracts like this: (50 x 365.00 + 50 x 365.50) / 100 = 365.25.  All the clients that invest in this CTA would therefore see a price of 365.25 for this corn trade on their FCM statement.

APS allows CTAs to scale into trades

Further, the APS system allows CTAs the ability to scale in and out of trades, based how on strongly the manager feels about the position. Using the same example above, let’s say the CTA expects the price of Corn to continue higher through the day, however, may feel that the price may trend lower for a brief period. Instead of trading the full 100 contracts, the CTA could trade 25 contracts (or 25% of their position) and scale into the position if the Corn market continues lower. As the CTA scales into their position, it allows the CTA to get the possible price. The APS system will average the price across the scales and give one price across the trade to the investor.

While the above examples are simple, an investor may not realize that a CTA is usually getting filled at many different prices.  While the monetary impact of the price fills is not significant, the APS system helps ensure that their clients are all being treated equally.  Furthermore, a CTA is generally executing hundreds of contracts in multiple markets daily, and receiving many different price fills within each market…imagine having to do all that math by hand! The APS system is not only a CTA’s best friend, but it’s also a valuable tool that is working behind the scenes to ensure all investors are being treated the exact same way.