033 - Rob Carver - The Comprehensive Guide to a Diversified Futures Strategy
The A-Z of building a systematic futures portfolio
In this episode, seasoned trader Rob Carver shared his nuanced approach to building and managing a diversified futures portfolio—a methodology that appeals to advanced, technical traders, while we also covered off some of the 'basics' of futures trading, such as rolling, back-adjusting, and so on. I did my best to break down the key elements of his strategy, from market selection to dynamic optimization and continuous trading. A couple of interesting things came up, there's a lot of detail in here, and luckily you can go to his blog and books for all the technical detail.
For the long-term futures trader with a smaller account, this is essential listening. How much diversification across markets and models is enough? How can we capture the benefits of this diversification with a limited account size? Rob has innovative approaches to both market diversification and model diversification to generate a highly capital efficient approach.
1. A Multi‐Asset Approach with a Focus on Futures
Rob’s trading activities are split across three main portfolios:
• A futures portfolio (roughly 25% of his risk exposure)
• An ETF portfolio designed for a traditional “all weather” allocation
• A UK stock portfolio based on a mix of value and momentum
While his overall exposure spans different asset classes, it’s the futures portfolio that reveals the depth of his systematic approach. Rob manages around 35 futures contracts drawn from a much larger universe — gathering data on up to 250 markets — to capture the diversification benefits that are “the only free lunch in finance”.
2. Dynamic Optimization: Trading Beyond Static Allocations
One of the standout concepts from the discussion was Rob’s move from a static allocation (trading a fixed set of futures contracts) to what he terms dynamic optimization. Originally, he faced a practical challenge: while large funds can trade hundreds of futures contracts, his own capital constraints meant he had to choose just 30–35 instruments. His solution was super interesting (inspired by one of his followers):
• He builds a “virtual” portfolio by imagining fractional positions across a broad set of markets.
• Given that futures contracts can’t be traded in fractions, his algorithm selects the optimal set of whole contracts that most closely matches the ideal diversified portfolio.
• This process even allows for smart substitutions—if a particular market (say, Japanese government bonds) has an oversized contract, the system might substitute a smaller Korean bond contract with similar risk characteristics.
This dynamic approach not only improves the risk profile but also minimizes transaction costs—a benefit that becomes increasingly significant at larger trading sizes. Rob says he sees a clear performance enhancement with this approach.
3. Systematic Market Selection and Capital Efficiency
Rob’s method for selecting futures contracts is rooted in systematic analysis rather than curve fitting or plucking from a hat. There are so many contracts out there, I like the idea of a rules-based methodology for what is traded and what isn't. The process involves:
• Iterating through a wide universe of markets and evaluating each instrument’s contribution to overall portfolio diversification
• Taking into account key factors such as trading costs and contract sizes (with an ideal minimum of four contracts per instrument to capture the benefits of continuous trading)
• Continuing to add contracts until additional positions no longer yield a net improvement in expected performance
This “greedy” algorithmic approach ensures that the portfolio remains both diversified and scalable as capital increases. For smaller accounts, Rob advises a minimum of $100K to effectively capture these diversification benefits, while larger accounts (in the millions) can achieve near-optimal performance with a well-constructed portfolio. Keep in mind we are talking about longer-term strategies here which only utilise end of day data.
The methodology used for implementing a wide range of strategy variants (80-100) is one which finds an average of them all, narrowing down the number of positions placed. This ingenious method means that he can add strategy variants without requiring more capital. More capital is only required when adding more markets and, as above, there's a capital-optimal solution for that as well.
For the long-term trend trader who has a limited account size (still needs to be $100-$500k ideally) Rob's methods should be studied in detail!
4. A Spectrum of Trading Strategies and Continuous Forecasting
Rob employs a range of trading strategies that can be broadly categorized into divergent (trend-following) and convergent (mean-reversion) approaches:
Divergent Strategies:
Momentum: Using various measures, including traditional moving average crossovers and normalized momentum indicators.
Breakout and Acceleration: These strategies look to capture early price moves, gradually building a position as the bullish signal intensifies.
Relative Momentum: Comparing performance across similar asset classes to determine where the strongest trends lie.
Convergent Strategies:
Carry: Trading based on the shape of the futures curve and relative carry across asset classes, betting that steep curves will eventually “roll down” in price.
Mean Reversion: Although less central to his own trading, Rob acknowledges that very short-term mean-reversion signals can complement trend-following methods.
A key innovation in his approach is the use of continuous forecasting. Instead of the traditional binary “flat or full” decision, Rob quantifies his signals—where a forecast of zero means no position, +10 signals an average bullish view, and values are capped at ±20 to manage risk. This continuous method is forecasting the 'strength of the trend' and allows for gradual position building and reducing exposure as market conditions change, resulting in a smoother risk profile and lower trading costs compared to a discrete, stop-loss-driven approach.
Conclusion: A Systematic Blueprint for Futures Trading
Rob Carver’s approach underscores that sophisticated futures trading need not be overly complex—it can be managed systematically through dynamic optimization, systematic market selection, and continuous, forecast-based position sizing. For advanced traders, these insights demonstrate that it’s not just about having more capital, but about employing smart algorithms to harness the full potential of diversification and risk management.
For a deeper dive into these strategies and the complete reasoning behind each tactical decision, listening to the full podcast and exploring Rob’s detailed writings is highly recommended.
Happy Trading!
Get in touch with Rob
I highly recommend Rob's book, 'Advanced Futures Trading Strategies' to really get you started in futures!