Mark Melin understands the inner workings of sophisticated investments, as his books and past teaching at Northwestern University amply illustrate. While he studies extremely complicated topics, he can explain even the most sophisticated investment methods using understandable terms and analogies.
Mr. Melin has a long history working on the inside of the financial services industry as a consultant to many organizations, including the Chicago Board of Trade (CBOT) and OneChicago, the single stock futures exchange. At the CBOT Mr. Melin helped write documents discussing trading strategies and ultimately co-edited the Chicago Board of Trade’s Handbook of Futures & Options, updating The Commodity Trading Manual, which was an industry standard educational rite of passage at the time. He also witnessed firsthand the onslaught of Eurex, as a German exchange backed by a well-known Wall Street-based financial institution that sought control of trading on the U.S. “yield curve,” where an open and regulated market determines important issues such as current mortgage rates to the amount of interest paid on a savings account.
While at OneChicago, Mr. Melin had the pleasure of working with former CFTC Chairman William Rainier, a principled man who often dared challenge existing group think regarding lack of derivatives regulation in the energy sector. Mr. Rainier’s even-handed and logical approach to markets was always admired. One might call it the “old school” of derivatives risk management, one that considers transparency and trading on a regulated exchange key components of proper risk management. This stands in contrast to the “new school” celebrated leverage management that did not believe in transparency or regulation. It was such non-transparent management that lead to the Long Term Capital Management tremor, the mortgage backed derivatives eruption and the MF Global fireworks show.
“The key is not to be defeated by loss, but to learn from it.”
At OneChicago Mr. Melin assisted with efforts to promote liquidity and market making activates as they related to professional investors, developed a firsthand appreciation for the delicate balance of an exchange providing constant two-sided competitive markets. It was here Mr. Melin’s understanding of how markets worked that lead to a questioning of the “zero-sum” game concept, particularly as it relates to hedging – an example where the exchange can generate a “win-win” situation with various trade motivations. Melin enjoys talking with industry participants and sharing their lessons and knowledge because he learned these lessons through the school of hard knocks. Growing up in the shadows of the Chicago Board of Trade and Chicago Mercantile Exchange, Mr. Melin experienced both the highs and lows of trading at an early age, trading his own account in college – significantly winning one year and the next living life on Kraft Mac and Cheese. Having experienced the highs and the lows firsthand, he has developed a specific investment philosophy, recommending a focused risk management system and investing in quality programs after a drawdown.
Early in his futures industry career, Mr. Melin traded a short volatility system along what is known as the yield curve, the key strategic point where interest rate price discovery takes place. Working with a veteran floor options trader, Mr. Melin started by writing a newsletter describing tactics used in spread arbitrage strategies trading spreads along the two, five and ten year interest rate market. It was here he first encountered the CFTC, an interesting lesson in how enforcement and regulation works. It was at this point Mr. Melin started to become interested in how electronic markets operated. Working with the famed academic and Managed Futures investment author Carl Peters, he examined the software used for electronic market making in the options markets and noted some interesting features, including the “electronic eye” that systematically tracked market activity and adjusted the market maker’s bids and asks accordingly. This system would later come into play during the “flash crash” of 2010 when electronic markets on the New York Stock Exchange simply dried up and stocks literally crashed to zero value in a matter of seconds.
After writing a newsletter, he transformed the volatility trading system into a registered Commodity Trading Advisor (CTA) investment in the managed futures industry. It was here where he learned several lessons, including that past performance is not indicative of future results when considering mathematical probability tables on the yield curve and the negative force of volatility on a naked short options position. In short, after strong initial performance, the program was hit by a freight train of volatility, patterns of which Melin had not seen in the past. Often times the key is not being defeated by loss, but learning from it. This episode in risk management taught him several valuable lessons he takes with him today when he discusses risk management and tactics of investing after a drawdown, or period of sustained loss.
Mr. Melin leveraged his knowledge and became director of managed futures at Alaron Trading, a mid-sized futures commission merchant run by the Greenberg family, who has a history dating back to the hog pits in Chicago. After working out of both Chicago and Los Angeles, Alaron was later acquired by Peregrine Financial Group and the Wasendorf family, a firm founded by former movie producer Russ Wasendorf Sr. It was here he refined initial concepts in managed futures and finished writing High-Performance Managed Futures. Mr. Melin took this book and taught a managed futures course at Northwestern University’s Continuing Education program. In 2011 while writing for Reuters Hedgeworld, he took a position as editor of the Opalesque Futures Intelligence newsletter, where he further expanded the distribution of his alternative investment methodologies. Mr. Melin is currently working with Opalesque and other industry participants to develop a managed futures “Internet TV show.”
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CONTENT DISCLOSURE
This web site and related communication substantially represent the opinions of the author and are not reflective of the opinions of any exchange, regulatory body, trading firm or brokerage firm. The opinions of the author may not be appropriate for all investors and there is no warrantee relative to the accuracy or completeness of same.
RISK DISCLOSURE
PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
THE RISK OF LOSS IN TRADING COMMODITIES CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. YOU COULD LOOSE ALL OF YOUR INVESTMENT OR MORE THAN YOU INITIALLY INVEST. IN SOME CASES, MANAGED COMMODITY ACCOUNTS ARE SUBJECT TO SUBSTANTIAL CHARGES FOR MANAGEMENT AND ADVISORY FEES. IT MAY BE NECESSARY FOR THOSE ACCOUNTS THAT ARE SUBJECT TO THESE CHARGES TO MAKE SUBSTANTIAL TRADING PROFITS TO AVOID DEPLETION OR EXHAUSTION OF THEIR ASSETS.
THE DISCLOSURE DOCUMENT CONTAINS A COMPLETE DESCRIPTION OF THE PRINCIPAL RISK FACTORS AND EACH FEE TO BE CHARGED TO YOUR ACCOUNT BY THE COMMODITY TRADING ADVISOR (“CTA”). THE REGULATIONS OF THE COMMODITY FUTURES TRADING COMMISSION (“CFTC”) REQUIRE THAT PROSPECTIVE CUSTOMERS OF A CTA RECEIVE A DISCLOSURE DOCUMENT WHEN THEY ARE SOLICITED TO ENTER INTO AN AGREEMENT WHEREBY THE CTA WILL DIRECT OR GUIDE THE CLIENT’S COMMODITY INTEREST TRADING AND THAT CERTAIN RISK FACTORS BE HIGHLIGHTED. THIS DOCUMENT IS READILY ACCESSIBLE AT THIS SITE. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF THE COMMODITY MARKETS. THEREFORE, YOU SHOULD PROCEED DIRECTLY TO THE DISCLOSURE DOCUMENT AND STUDY IT CAREFULLY TO DETERMINE WHETHER SUCH TRADING IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.
YOU ARE ENCOURAGED TO ACCESS THE DISCLOSURE DOCUMENT. YOU WILL NOT INCUR ANY ADDITIONAL CHARGES BY ACCESSING THE DISCLOSURE DOCUMENT. YOU MAY ALSO REQUEST DELIVERY OF A HARD COPY OF THE DISCLOSURE DOCUMENT, WHICH WILL ALSO BE PROVIDED TO YOU AT NO ADDITIONAL COST.
PFG BEST DOES NOT HAVE AN OWNERSHIP STAKE IN ANY OF THE CTAS WE RECOMMEND OR UPON WHICH WE PROVIDE RESEARCH. MUCH OF THE DATA CONTAINED IN THIS REPORT IS TAKEN FROM SOURCES WHICH COULD DEPEND ON THE CTA TO SELF REPORT THEIR INFORMATION AND OR PERFORMANCE. AS SUCH, WHILE THE INFORMATION IN THIS REPORT AND REGARDING ALL CTA COMMUNICATION IS BELIEVED TO BE RELIABLE AND ACCURATE, PFG BEST CAN MAKE NO GUARANTEE RELATIVE TO SAME. THE AUTHOR IS A REGISTERED ASSOCIATED PERSON WITH THE NFA.
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