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Quoting Alternative Investment Yields Legally

alternative-investment-yields-managed-futures-forex-private1In the alternative investment markets, the common question is, “How high are the yields”?

Though it seems like a straight forward question, it’s anything but that.  In fact, depending on the investment market, it can be very tough to explain. The reason is, every investment market has high and low risk strategies. You can be in a “high risk market” while using a low risk strategy. The real question for investors shouldn’t be “how high are the yields”, it should be “how much risk can I tolerate”?

In this article, we’ll teach you how to legally quote yields in the private placement, managed futures and forex markets.  In addition, we’ll also cover what to expect from someone quoting returns to you. This will teach you the basic laws, while also providing tools to help qualify new opportunities.

Despite what many people think, there are strict laws when referring to the yields of any alternative investment.  Since our blog focuses mostly on the private placement, forex and managed futures markets, we’ve provided a regulatory summary for each.  This covers the barriers and opportunities within each of these lucrative niches. Excited yet? Well, let’s scroll down to get started!

Rules for Quoting Yields for Alternative Investments

Managed Futures:  For licensed managed futures traders, yields must be audited and verified by the NFA/CFTC.  If you speak with a futures trader, ask for a performance history of at least 3 years.  The numbers you’ll see are the actual returns, unlike most private trades with hypothetical yields. When quoting yields verbally, futures traders can refer to past returns but they must also mention risk. If they paint too rosy of a picture, not mentioning risk, there could be future regulatory problems. In addition, futures traders can NOT show the returns of another program if the investor isn’t entering it. In the futures industry, brokers pitch the track record to investors who choose to invest or not. It’s really that simple.

Managed Forex:  With private managed forex investments, there’s no regulatory body to govern transactions. Though the NFA/CFTC has tried to implement new laws, they’ve had little effect on the private FX market. Due to the lack of regulation, yields are quoted very loosely and can even be  “guaranteed”. Needless to say, no one can guarantee consistent success in forex.  Always be cautious of yields that are verbally quoted, or any “track record” when dealing with private forex investments. In contrast, licensed forex investments are regulated and audited by the NFA/CFTC.  With licensed forex, you can conduct due diligence easily, evaluating the trader’s track record and licensing history. When speaking with a licensed forex trader, he must state the audited yields to the clients.  Since they’re licensed they can’t lure you with hypothetical yields, unlike private FX.

Private Placement:  In the world of private placement, yields MUST be quoted in a specific manner.  To remain legal, the client MUST request information first, agreeing that they haven’t been solicited. Once that happens, the broker can explain the details to the prospect.  When covering the yields of the program, private placement brokers must ALWAYS use the word “historical”.  Unfortunately, many of the less experienced brokers break the law by stating definite numbers, guaranteeing specific yields. Though some think the private placement market is unregulated, it isn’t.  The fact is, at any time, you may have several agencies watching over you. This is why it’s more important than ever to not slip up!

If we haven’t listed the investment market you’re interested in, ask yourself, “Is this investment private or licensed”?

If it’s a licensed investment, it’s in your best interest to thoroughly research the laws of that market. This can be accomplished by visiting the website of the regulatory body (ex., CFTC,gov, etc.).  These sites will teach you about due diligence, while helping you to determine which claims are real.  Typically, licensed investments must be audited, so it makes it easy for investors to see REAL performance, not hypothetical figures.

On the other hand, if it’s a private investment you have to take a different approach. First, you must evaluate their claims and conduct thorough due diligence on their personnel.  Second, you MUST be provided references or some proof showing the yields they claim. Third, you must be willing to lose all of your money before you invest.  “Wait, why would you say that”? Well, as you should know by now, private investments can pay off or EXPLODE. Remember, yields are always hypothetical in private investments, and though it may seem appealing, it’s usually not worth the risk.

In summary, no matter what type of alternative investment you’re pursuing, pay special attention to the yield quotes.  In many cases, these details can help you determine if an investment is real or not.  Think about it, if you were successful, would you risk everything by quoting the yields improperly?  On the other hand, if you weren’t successful, would you exaggerate returns to close a deal?

The answers are simple, just like the rules are.  Even though many people ignore regulation, you should ALWAYS play by the rules. Remember, EVERYONE is watching, and ignorance of the law is no defense…

InsideTrade LLC Staff                                                                                                                Phone: (949) 444-2111


  • aj sterns said:

    People can go to jail for this kind of stuff. Nice article, I hope it help people other than me.

  • The 10 Facts of Alternative Investment Brokerage | InsideTrade LLC said:

    [...] Alternative Investment Brokers Earn Great Commission:  If you’re a successful alternative investment broker, you can get filthy rich in very little time.  Lawyers work day and night for $250K per [...]

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