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What is a commodity etf?

What is a commodity etf?

Commodity ETFs are focused on tracking the performance of commodity prices and their derivatives contracts.

ETFs are like mutual funds that trade intra-day like stocks, but the volatility of commodities prices can make these equally unpredictable. Commodity ETFs are intended to track the performance and price movements of commodities and their derivatives.

All sorts of commodities can and have become part of an ETF offering, from gold to grain, cattle, and coffee, and even US and foreign currencies. Each commodity has its peculiarities and it would be good to know about the market for each commodity that you intend to invest in.

ETFs use the pooled capital of investors like mutual funds to invest in assets according to an agreed-upon strategy set forth in a prospectus. Commodity ETFs trade on exchanges such as the NYSE Arca exchange. Investors can trade options on these ETFs as well.

Some commodities ETFs focus on one type of commodity, and some invest in a certain variety of them. Commodities ETFs may invest in and hold some of the physical assets in which they trade, but mostly they use futures and other derivatives instead.

The price movement in commodity ETFs may not adhere to the prices of the underlying commodity, due to the effects of volume on the ETF share prices, as well as contango and backwardation.

What is a Foreign Currency Swap?
What is a Commodities Futures Contract?

Keywords: New York Stock Exchange (NYSE), backwardation, contango,