How do I Invest in commodities?

How do I Invest in commodities?

Commodities can be acquired through brokerage services that can access the commodities markets, or you can buy the stocks of companies that bring commodities to market.

Investors can also gain exposure to commodities through mutual funds and ETFs that focus on them. There are a few ways to invest in commodities. One simple way is to purchase the stock of companies that produce commodities.

You can also invest through futures contracts, which are agreements to buy a certain amount of a commodity at a certain price at some point in the future; this is the primary way that commodities are traded. They can also trade at spot, which means at the current price, or through the use of other derivative instruments, such as options on futures contracts.

You can also purchase ETFs and mutual funds which invest solely, or heavily, in commodities. The portfolios in these funds may be very broad, capturing the movement of most of the commodities market, or very specific, focusing on a few specific types of commodities, or just one.

The primary exchange on which commodities and their derivatives are traded is the CME (Chicago Mercantile Exchange) Group out of Chicago, but ETFs and mutual funds can be found on other exchanges such as NYSE Arca. Your brokerage service may have access to both of these exchanges, or you may be able to access them yourself.

You may need to research the naming conventions for futures and options contracts, which is often done with letters which signify the month, type of contract (put, call, future), and possibly strike price.

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