Commodity futures have always provided speculators opportunities for substantial profit. That's, of course, the lure of this risk transference market. By shouldering the price risk that commercial users and producers wish to shed, speculators get a shot at making leveraged gains, if they can correctly forecast price movements.
But the volatility in commodity prices generally precludes a "buy-and-hold" approach to futures. Commodity accounts are marked to market each day. Cash flows from loser to winner, which leaves little cushion for customers who are highly margined. When only 3 to 5 percent of a contract's value is put up as a performance bond, margin calls aren't such remote possibilities.
Nowadays, however, investors can also tap into commodities through their securities accounts without having to subject themselves to the vicissitudes of margin trading. Exchange-traded products, in the form of futures-holding funds, structured notes and grantor trusts, now permit access to enough individual commodities that a savvy investor can build a diverse portfolio capable of capturing longer-term cyclicality.
For more on the benefits of exchange-traded commodity products, click here.
