By A.I. Miguel

In the past, if you wanted to speculate on a commodity (i.e. Gasoline, Oil, Cotton, Coffee, etc), the only way was to open an account with a commodity futures broker.  This presented numerous drawbacks for the average investor/speculator:

·          First you needed to spend the time and effort to learn about the futures market and the underlying contracts. This is not an easy undertaking for most people.

·          Next is the high cost of a futures contract.  Just one contract may cost hundreds of thousands of dollars.  Yes, you can trade on a slim margin, but that entails a highly leveraged degree of risk that can wipe out your principal pretty quickly.

·          Quotes for commodities are not as easily accessible compared to stock market quotes. 

·          Lastly, commodity futures contracts are a wasting asset (that they will expire with in the time frame specified in the contract), and you will need to close out the position before expiration (unless you are going to take or deliver the commodity and amounts specified in the contract).

Today, you can trade commodity interest via the stock market in the form of an Exchange Traded Fund (ETF) with a discount stock broker.

There are advantages of trading commodity ETFs versus the traditional commodity futures contracts:

·          It is comparatively easier to learn about and understand the stock market and underlying ETFs.

·          The principal dollar amount of an ETF position is decided by you. With many ETFs, the minimum purchase amount is typically only 1 share (although to control 1 share is probably not worth the time or effort, and normal brokerage commissions will apply).  ETFs can usually be traded on margin, but with much higher requirement compared to a futures contract.

·          Quotes for ETFs are readily available on the Internet. 

·          Unless it is specified in the prospectus or the board of directors decides to close the fund, ETFs do not expire.  You can stay long (or short, unless the stock is no longer available) for as long as you think it will take for the commodity to complete its movement. 

Here is a listing of selected commodity ETFs:

Please note, the author does not recommend the purchase (or short sale) of this or any other asset class, and is in not affiliated with any of the Funds or Sponsors listed above. The sole purpose of this article is to inform the reader about the ability to trade commodity interests via the stock market.  There is always a degree of risk of loss when trading any asset class.   Before making a purchase or sale on any asset, please take the time necessary for thorough research.  The degree and form of ownership of a specific commodity varies for each ETF.  Make sure that the particular ETF meets your parameters before investing money. Liquidity for ETFs varies. You may obtain more information, including a prospectus, about an ETF from the respective sponsor.