In 2006 we saw the advent of currency exchange traded funds (ETFs). They are instruments traded like stocks that track the forex market, tapping in to an increasingly popular trading arena. The ETF market is growing once more, now expanding in another area of increased interest – commodities.
There have been commodity ETFs for a number of years now. The first of the kind was in Gold with StreetTracks Gold Shares (GLD), launched in November 2004. Others soon followed. There are now plans in the works for Silver and Oil ETFs as well that should be available shortly.
There are also some commodity basket ETFs on the way. Deutsche Bank’s PowerShares DB Commodity Index Tracking Fund focuses on a group of highly liquid commodities. They included crude oil, heating oil, aluminum, gold, corn and wheat.
Deutsche Bank and PowerShares are also launching several other new ETFs based on commodity baskets, ones that are a bit more sector specific. They include funds focusing on agriculture, base metals, energy, oil, precious metals, and silver and gold.
For those traders not in a position to trade commodities via the futures market, or not willing to take on the risk that kind of leverage creates, commodity ETFs provide an excellent alternative trading vehicle. They allow a great many more traders to participate in extremely important and active markets that previously were not open to many people.
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About the Author
John Forman, author of this blog, has traded for more than 20 years, is a professional market analyst, and authored The Essentials of Trading. He is an active participant in trading forums, consults for trading related businesses, as published literally dozens of trading articles, and has been quoted in a number of books and in the media.
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