How to Invest in a High-Risk Commodity ETF

The commodity ETF is a relatively new form of investment that many traders have started to turn to. With the commodity ETF, you can access the commodities market indirectly. Here are the basics of how to invest in a high-risk commodity ETF.

Commodity ETFs

In order to understand how to invest in a commodity ETF, you first need understand what a commodity ETF is. ETF stands for "exchange traded fund." This name indicates that you can buy and sell shares of a fund on the stock exchange anytime that the stock exchange is open. This presents traders with a lot of flexibility. An ETF is very similar to a mutual fund, as it holds shares of many different types of securities in a diversified portfolio. As an investor, you can purchase individual shares of this portfolio.

While many ETFs invest in traditional stocks and bonds, commodity ETFs invest in commodities. They might buy physical inventory of the commodities themselves, or they might purchase futures contracts that deal with the commodities. A commodity ETF could also invest in stocks that are distributed from commodity companies. A typical commodity ETF will diversify its holdings over a number of different types of investments to lower the overall risk. However, there are certain commodity ETFs that have much higher risk involved.

High-Risk Commodity ETFs

A high-risk commodity ETF presents you with an opportunity to make a higher return on your investment. These types of ETFs may not be nearly as diversified as other types of commodity ETFs. They might invest all their holdings into one particular commodity that is very volatile. For example, you could invest in an oil ETF that will fluctuate correspondingly to the price of oil. It might purchase several different futures contracts on oil, which allows it to gain greater exposure to the oil market overall.

Investing in High-Risk Commodity ETFs

This can present you with a large opportunity for capital growth. In order to get involved with this type of investment, you will have to open a standard brokerage account with a financial broker. You should be able to access commodity ETFs from any financial broker in the market. Once you have a brokerage account, you will need to fund it, and then you will be free to purchase shares of a commodity ETF. You should be able to place an order from your online trading platform, or you could work directly with a stockbroker instead.

Most of the time, commodity ETFs are a very liquid form of investment with many traders in the market at any given time. Therefore, there is not usually any problem getting an order filled for shares of a commodity ETF. The only exception may be if you are trying to buy or sell a very large quantity of shares in the ETF.

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