How to invest in commodities?

You can invest in commodities through a brokerage account at many popular brokerages. Some firms focus on active trading but most full-service brokerage firms make it possible to invest in commodities through funds even if other options are not available.

Here are the methods most people use to buy and sell them in the markets:

  • Mutual funds: Like ETFs, with mutual funds, you can own commodities as any underlying asset without going into the futures or options markets yourself. These are best for long-term commodity investments.
  • Futures: With futures trading, you own an asset without taking control. Most contracts work similarly to options, where you have a right to exercise a contract on a specific date in the future. If the value is higher than what you paid, you make money. If it has fallen since you bought it, you lose money when selling your position.
  • Options: Commodity options work like a hybrid of stock options and commodity futures. These instruments allow you to buy (through a call) or sell (through a put) a specific quantity of a commodity at a future date at a specific price. Unlike futures, options typically put a limit on risk. Options trading also usually cost more than other types of investing options.
  • ETFs: Over 100 different exchange-traded funds (ETFs) allow you to invest in instruments that follow the price of underlying commodities. You can buy and sell them like a stock.