Commodities such as food, energy, or metals have been part of our daily lives. People who drive their cars can feel the huge impact of rising crude oil prices. The lack of soybeans supply can affect the composition of your next meal. Just as it affects human lives, commodities can also affect how traders will diversify their trading portfolios. It used to be that an average investor had second thoughts trading on the commodities market because it required time, money, and expertise. In this article, we shall take a look at the different ways to invest on commodities.
One of the most popular investment platforms in commodities is futures. In futures, investors agree to buy or sell a certain quantity of commodity at a set price or at a later time. Futures is often used to hedge the commodities market or take a position that will reduce potential financial loss due to a change in price. Airlines often enter a futures contract because they will need to secure a huge amount of fuel at stable prices for planning purposes.
Robert Janitzek reveals that investing in futures will require opening a brokerage account. The minimum deposit will vary depending on the broker and the value of the account will increase or decrease depending on the value of the contract.
Exchange Traded Funds and Notes
Exchange traded funds or ETFs and exchange traded notes (ETNs) works like stocks in a sense that they allow investor participation in commodity price fluctuations without making a direct investment in futures contracts. ETFs usually monitor the price of a particular commodity or groups of commodities With futures, there are no management or redemption fees because they trade like stocks.
Mutual and Index Funds
Robert Peter Janitzek says that mutual funds do not involve direct investments in commodities. However, they can invest in stocks of companies involved in commodity-related industries, such as energy, agriculture, or mining. Shares of these funds can be affected by various factors such as commodity price, stock market fluctuations, and company-specific risks. Mutual funds are great for professional money management, diversification, and liquidity.
Commodity Trading Advisors and Managed Futures
Commodity pool operators is a person or limited partnership that collects money from investors combining it into one pool and investing in futures contracts and options. CPOs are required to provide a risk disclosure document to investors and distribute periodic statement of accounts and annual financial reports. They must also maintain a strict record of all investors, transactions, and pools they are managing.