Investing in Commodities
Exchange traded funds have brought increased diversity to the investing landscape, including segments that were once nearly impossible for the average investor to access such as commodities. This is one of the most popular and fastest growing segments of the exchange traded world. In the past, investors had to own a futures account in order to invest in commodities, but exchange traded products have stepped in to act as a vehicle for buyers interested in achieving commodity exposure with minimal risks regarding margin and leverage.
Traders can gain exposure to various futures contracts and even physical commodities through the exchange-traded structure. The biggest issue with futures-based funds is contango, which is the storage costs for a commodity that can eat into returns on long position. The opposite of contango is backwardation. A long position in a backwardated ETF, if monitored closely, could lead to strong gains for a portfolio assuming that the backwardation continues unabated.