All About Commodity Pools | Trading Tips


Another way to gain access to markets in commodities futures is to join a commodity pool. As the name suggests, a commodity pool is a pool of funds that is traded on the futures markets for commodities. The commodity pool is managed and operated by a commodity designated pool or operator (CPO), which is licensed with the National Futures Association and registered with the Futures Trading Commission Commodity.

All investors participating in profits (or losses) from the pool of commodities based on the amount of capital theyâ € ™ ve contributed to the pool.

Investing in a commodity pool has two main advantages over the opening of an individual account with a trading advisor commodity trading (CTA). First, because it’s € ™ re joining a pool with a number of different investors, significantly increasing their purchasing power. You get a lot more leverage and diversification if € ™ re trading a $ 1,000,000 compared with an account of $ 10,000.

The second benefit, which may not seem obvious at first, is that commodity pools tend to be structured as limited partnerships. This means that, as an investor, with a stake in the pool, the most you can lose is the capital invested in the first place. Losing all the director can seem like a bad deal, but for the futures markets, itâ € ™ s pretty good!

With a single account, you can borrow money to buy futures contracts. If you entered the position on borrowed funds does the opposite of what was expected, it has not only lost its director, but also have to pay your broker who loaned the money to open the position. You lose your head and still owe money.

Now, due to commodity pools are registered as limited companies, even if the fund uses leverage to buy securities and bottom to create a margin call is € ™ re not responsible for the margin call. Therefore, the only risk capital is the director! Of course, you want to perform due diligence on the CPO to keep the probability of the pool spend as little as possible!

A good place to start looking at commodity pools is Commodities Investors LLC.