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Commodity Pool

Reviewed by Vineeth | Updated on Oct 05, 2020

Catalogue

Introduction

A commodity pool is an investment structure that is private in nature, and it combines investments made by investors to purchase securities in the commodities and futures markets. The commodity pool is also referred to as the commodity pool, and it is utilised as a single entity in order to get leverage in trading in anticipation of optimising the profit potential.

The term ‘commodity pool’ is a legal term which is set under the National Futures Association (NFA). The commodity pools may be regulated by a different entity apart from the country’s securities market regulator.

For instance, in the United States of America (USA), the Commodity Futures Trading Commission (CFTC) is the regulator of the commodity pools.

ETFs

A simplified process for retail investors to get access to the market is through trading exchange-traded funds (ETFs). These are comparable with mutual funds and come with much lower costs. Commodity pool ETFs can be considered a kind of commodity pool in which investors combine finances from various investors to get access to the commodity and futures markets.

ETFs have been on the booming trend of late as they have attracted the customers by allowing them to be flexible in the way they go about their investments. Also, the fact that ETFs are of lower expenses as compared to mutual funds has made them a great investment option.

Pros

The main advantage of investing in commodity pool is that you are going to join the pool of several investors with similar investment objectives, and thereby increasing your purchasing power. It is always beneficial to have a larger purchasing power.

For instance, having a purchasing power of Rs 1 lakh is way better than having a purchasing power of a mere Rs 10,000. Commodity pools are structured in a way that the investors get the tax benefits.

Related Terms

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