Commodity ETF
Categories: Index Funds, Metrics, Trading, Derivatives
You want to invest in the trend of rising oil prices, but you can’t actually purchase 100 options contracts of physical oil and take delivery of oil barrels in your backyard. The more popular way to invest directly into commodity prices is to buy electronic-trading funds that attempt to replicate the price movements of the underlying physical commodity.
These funds trade like stocks; however, there are risks due to the fact that they utilize derivatives contracts to mimic the performance of commodity prices. For example, oil ETFs can experience significant losses should the futures contracts in which they invest fall into contango.
Some commodity ETFs, like the SPDR Gold (GLD), actually purchase physical gold, and stores it in vaults in London. Maybe that will make you feel better about replicating gold prices, but you never actually own any of the gold yourself unless you have 100,000 shares of GLD. So...you really own a piece of paper, or a number on a screen.
Then there's the United States Oil Fund (USO), an energy ETF, which attempts to replicate U.S. oil prices by buying and rolling over WTI futures contracts. That comes with its own set of risks and costs that might not lead to higher gains while oil prices are rising in the short term.
Yeah, these things aren’t as simple as the people selling them make them out to be.
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Finance: What Are Commodities?74 Views
Finance allah shmoop What are commodities This is a comm
owed And this is my monnet ease And neither of
them have anything to do with commodities though if you
say them fast enough well you'll never mind A commodity
is something that is common like it's everywhere See the
com o there for the big hand Like gold is
a commodity it's everywhere oil is a commodity it's everywhere
seven hundred fourteen page paperback copy of moby dick is
a commodity and yes we can't resist clueless politicians are
a commodity as well Well a commodity is basically the
same thing no matter where and how you buy it
That copy of moby dick is the same copy whether
you get it at your local bookstore If a physical
book stores even exist anymore or on amazon the serial
killer of those aforementioned book stores So if something is
the same everywhere well what would be the opposite Well
how about a swim lesson from michael phelps You know
you can't buy that on amazon Not yet anyway Or
say you want to be the proud owner of a
three headed dog Well you might be able to find
one somewhere but it's going to cost you a whole
lot of kibble Or what if you were looking to
buy a blouse like one that was worn by j
edgar hoover Well those are pretty uncommon and or unique
commodities Well the basic idea is that most commodities can
be sold by lots of people so their profit margins
are generally low They may sell an extreme volume but
if you have thirty people competing to sell you that
same copy of moby dick don't don't you think the
last guy just desperate to get it off his shelves
will drop the price really low and you'll take it
Yeah unfortunately then you have to read that book That 00:01:41.357 --> [endTime] book really will be your way