Note 10. Derivative Instruments

The Partnership follows the provisions of FASB ASC 815, Derivatives and Hedging. FASB ASC 815 is intended to improve transparency in financial reporting by requiring enhanced disclosures of an entity’s derivative instruments and hedging activities and their effects on the entity’s financial position, financial performance, and cash flows. FASB ASC 815 applies to all derivative instruments within the scope of FASB ASC 815-10-05. It also applies to non-derivative hedging instruments and all hedged items designated and qualifying as hedges under FASB ASC 815-10-05. FASB ASC 815 amends the current qualitative and quantitative disclosure requirements for derivative instruments and hedging activities set forth in FASB ASC 815-10-05 and generally increases the level of disaggregation that will be required in an entity’s financial statements. FASB ASC 815 requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements (see Trading Activities and Related Risks, Note 8).

The Partnership’s business is speculative trading. The Partnership intends to close out all futures, options on futures and forward contracts prior to their expiration. The Partnership trades in futures and other commodity interest contracts and is therefore a party to financial instruments with elements of off-balance sheet market risk and credit risk. In entering into these contracts, the Partnership faces the market risk that these contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts being less valuable. The Partnership minimizes market risk through real-time monitoring of open positions, diversification of the portfolio and maintenance of a margin-to-equity ratio that rarely exceeds 25%.

In addition to market risk, in entering into commodity interest contracts there is a credit risk that a counterparty will not be able to meet its obligations to the Partnership. In general, clearing organizations are backed by the corporate members of the clearing organization who are required to share any financial burden resulting from the non-performance by one of their members and, as such, should significantly reduce this credit risk. In cases in which the clearing organization is not backed by the clearing members, like some non-U.S. exchanges, it is normally backed by a consortium of banks or other financial institutions.

In the case of forward contracts, over-the-counter options contracts or swap contracts, which are traded on the interbank or other institutional market rather than on exchanges, the counterparty is generally a single bank or other financial institution, rather than a central clearing organization backed by a group of financial institutions. As a result, there will likely be greater counterparty credit risk in these transactions. The Partnership trades only with those counterparties that it believes to be creditworthy. Nonetheless, the clearing member, clearing organization or other counterparty to these transactions may not be able to meet its obligations to the Partnership, in which case the Partnership could suffer significant losses on these contracts.

The Partnership does not designate any derivative instruments as hedging instruments under FASB ASC 815-10-05.

For the three months ended March 31, 2020, the monthly average number of futures contracts bought and sold was 4,747 and the monthly average number of forward contracts bought and sold was 397. For the three months ended March 31, 2019, the monthly average number of futures contracts bought and sold was 10,966 and the monthly average number of forward contracts bought and sold was 431. The following tables summarize the quantitative information required by FASB ASC 815:

Fair Values of Derivative Instruments at March 31, 2020 and December 31, 2019


	Consolidated	Asset		Liability
	Statements of Financial	Derivatives		Derivatives
	Condition Location	3/31/2020		3/31/2020		Fair Value

Agricultural contracts	Net Unrealized gain (loss) on open futures contracts	$	69,794	$	(5,448)	$	64,346

Currencies contracts	Net Unrealized gain (loss) on open futures contracts		121,017		(3,845)		117,172

Energy contracts	Net Unrealized gain (loss) on open futures contracts		203,381		(44,744)		158,637

Interest rates contracts	Net Unrealized gain (loss) on open futures contracts		466,955		(118,585)		348,370

Meats contracts	Net Unrealized gain (loss) on open futures contracts		25,317		—		25,317

Metals contracts	Net Unrealized gain (loss) on open futures contracts		329,602		(131,144)		198,458

Soft commodities contracts	Net Unrealized gain (loss) on open futures contracts		89,342		(10,809)		78,533

Stock indices contracts	Net Unrealized gain (loss) on open futures contracts		202,436		(217,894)		(15,458)

		$	1,507,844	$	(532,469)	$	975,375

Forward currency contracts	Net Unrealized gain (loss) on open forward currency contracts	$	135,413	$	(125,060)	$	10,353

Swap Contracts*	Net Unrealized gain (loss) on open swap contracts	$	—	$	(5,071,616)	$	(5,071,616)

*At March 31, 2020, the sector exposure of the CTA indices underlying the swaps was:

Deutsche Bank total return swap, termination date April 30, 2024
Agricultural contracts	6%
Energy contracts	1%
Interest rate contracts	53%
Metals contracts	4%
Stock indices contracts	3%
Forward currency contracts	33%
Total	100%

Deutsche Bank total return swap, termination date July 1, 2020
Interest rate contracts	42%
Stock indices contracts	10%
Forward currency contracts	48%
Total	100%


	Consolidated	Asset		Liability
	Statements of Financial	Derivatives		Derivatives
	Condition Location	12/31/2019		12/31/2019		Fair Value

Agricultural contracts	Net Unrealized gain (loss) on open futures contracts	$	201,399	$	(45,915)	$	155,484

Currencies contracts	Net Unrealized gain (loss) on open futures contracts		77,837		(71,524)		6,313

Energy contracts	Net Unrealized gain (loss) on open futures contracts		399,221		(314,480)		84,741

Interest rates contracts	Net Unrealized gain (loss) on open futures contracts		47,095		(324,965)		(277,870)

Meats contracts	Net Unrealized gain (loss) on open futures contracts		1,715		(5,030)		(3,315)

Metals contracts	Net Unrealized gain (loss) on open futures contracts		277,156		(152,572)		124,584

Soft commodities contracts	Net Unrealized gain (loss) on open futures contracts		56,283		(3,922)		52,361

Stock indices contracts	Net Unrealized gain (loss) on open futures contracts		325,154		(65,645)		259,509

		$	1,385,860	$	(984,053)	$	401,807

Forward currency contracts	Net Unrealized gain (loss) on open forward currency contracts	$	67,730	$	(136,803)	$	(69,073)

Swap Contracts*	Net Unrealized gain (loss) on open swap contracts	$	3,650,232	$	(612,793)	$	3,037,439

*At December 31, 2019, the sector exposure of the CTA indices underlying the swaps was:

Deutsche Bank total return swap, termination date April 30, 2024
Agricultural contracts	3%
Energy contracts	3%
Interest rate contracts	46%
Metals contracts	5%
Stock indices contracts	12%
Forward currency contracts	31%
Total	100%

Deutsche Bank total return swap, termination date July 1, 2020
Interest rate contracts	39%
Stock indices contracts	22%
Forward currency contracts	39%
Total	100%

The Effect of Derivative Instruments on the Consolidated Statements of Operations for the Three Months Ended March 31, 2020 and 2019


		Three Months Ended		Three Months Ended
Type of Contract		March 31, 2020		March 31, 2019

Agriculturals contracts	Net gain (loss) from futures trading	$	171,033	$	116,879
Currencies contracts	Net gain (loss) from futures trading		427,509		(506,183)
Energy contracts	Net gain (loss) from futures trading		568,697		(578,242)
Interest rates contracts	Net gain (loss) from futures trading		1,857,269		3,077,891
Meats contracts	Net gain (loss) from futures trading		143,671		(26,149)
Metals contracts	Net gain (loss) from futures trading		351,036		(253,345)
Soft commodities contracts	Net gain (loss) from futures trading		2,287		(162,505)
Stock indices	Net gain (loss) from futures trading		(3,818,038)		579,719
Forward Currency Contracts	Net gain (loss) from forward trading		244,864		36,355
Swap Contracts	Net gain (loss) from swap trading		(8,109,055)		(230,918)

		$	(8,160,727)	$	2,053,502


Line Item in Consolidated Statements of Operations	Three Months Ended
	March 31, 2020		March 31, 2019

Net gain (loss) from futures trading
Realized	$	(870,104)	$	1,887,583
Change in unrealized		573,568		360,482
Total realized and change in unrealized net gain (loss) from futures trading	$	(296,536)	$	2,248,065

Net gain (loss) from forward trading
Realized	$	165,438	$	17,913
Change in unrealized		79,426		18,442
Total realized and change in unrealized net gain (loss) from forward trading	$	244,864	$	36,355

Net gain (loss) from swap trading
Change in unrealized	$	(8,109,055)	$	(230,918)
Total realized and change in unrealized net gain (loss) from swap trading	$	(8,109,055)	$	(230,918)

Total realized and change in unrealized net gain (loss) from futures, forward and swap trading	$	(8,160,727)	$	2,053,502

The tables below show the gross amounts of recognized derivative assets and gross amounts offset in the accompanying Consolidated Statements of Financial Condition:

Offsetting of Derivative Assets

As of March 31, 2020


					Net Amount of
			Gross Amounts		Unrealized Gain/(Loss)
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statements of		Statements of
Type of Instrument	Assets		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	1,507,844	$	(532,469)	$	975,375
Forward contracts		135,413		(125,060)		10,353
Swap contracts		—		(5,071,616)		(5,071,616)
Total derivatives	$	1,643,257	$	(5,729,145)	$	(4,085,888)

Offsetting of Derivative Liabilities

As of March 31, 2020


					Net Amount of
			Gross Amounts		Unrealized Gain
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statements of		Statements of
Type of Instrument	Liabilities		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	532,469	$	(532,469)	$	—
Forward contracts		125,060		(125,060)		—
Swap contracts		5,071,616		(5,071,616)		—
Total derivatives	$	5,729,145	$	(5,729,145)	$	—

Derivatives Assets and Liabilities and Collateral Received by Counterparty

As of March 31, 2020


			Gross Amounts Not Offset in the Consolidated
			Statements of Financial Condition
	Net Amount of
	Unrealized Gain/(Loss)
	Presented in
	the Consolidated
	Statements of		Financial		Cash Collateral
Counterparty	Financial Condition		Instruments		Received		Net Amount

ADM Investor Services, Inc.	$	547,129	$	—	$	—	$	547,129
Deutsche Bank AG		(5,071,616)		—		—		(5,071,616)
SG Americas Securities, LLC		438,599		—		—		438,599
Total	$	(4,085,888)	$	—	$	—	$	(4,085,888)

Offsetting of Derivative Assets

As of December 31, 2019


					Net Amount of
			Gross Amounts		Unrealized Gain/(Loss)
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statements of		Statements of
Type of Instrument	Assets		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	1,385,860	$	(984,053)	$	401,807
Forward contracts		67,730		(136,803)		(69,073)
Swap contracts		3,650,232		(612,793)		3,037,439
Total derivatives	$	5,103,822	$	(1,733,649)	$	3,370,173

Offsetting of Derivative Liabilities

As of December 31, 2019


					Net Amount of
			Gross Amounts		Unrealized Gain
			Offset in the		Presented in
	Gross Amount of		Consolidated		the Consolidated
	Recognized		Statements of		Statements of
Type of Instrument	Liabilities		Financial Condition		Financial Condition

U.S. and foreign futures contracts	$	984,053	$	(984,053)	$	—
Forward contracts		136,803		(136,803)		—
Swap contracts		612,793		(612,793)		—
Total derivatives	$	1,733,649	$	(1,733,649)	$	—

Derivatives Assets and Liabilities and Collateral Received by Counterparty

As of December 31, 2019


			Gross Amounts Not Offset in the Consolidated
			Statements of Financial Condition
	Net Amount of
	Unrealized Gain/(Loss)
	Presented in
	the Consolidated
	Statements of		Financial		Cash Collateral
Counterparty	Financial Condition		Instruments		Received		Net Amount

ADM Investor Services, Inc.	$	(75,551)	$	—	$	—	$	(75,551)
Deutsche Bank AG		3,037,439		—		—		3,037,439
SG Americas Securities, LLC		408,285		—		—		408,285
Total	$	3,370,173	$	—	$	—	$	3,370,173