A commodity account is a type of investment account that allows investors to trade in commodities, which are basic goods used in commerce that are interchangeable with other goods of the same type. Commodities can include agricultural products, energy, metals, and other raw materials. Investors can use commodities to diversify their portfolios beyond traditional securities, and because the prices of commodities tend to move in opposition to stocks, some investors also rely on commodities during periods of market volatility.
Opening a commodities account means that the investor is planning to take a position on the market. To start trading in commodities, an investor needs to choose a commodity broker and open a commodity trading account. The account opening procedure typically involves filling out an account opening form, submitting relevant documents, and completing an in-person verification.
Commodity trading is an ancient profession with a longer history than the trading of stocks and bonds. There are different ways to invest in commodities, including through commodity pools, managed futures, options, ETFs, and mutual funds. Commodity focused stock funds may use futures contracts to track an underlying commodity or commodity index.
Commodities are a distinct asset class with returns that are largely independent of stock and bond returns. Therefore, adding broad commodity exposure can help diversify a portfolio of stocks and bonds, potentially lowering the risk of an overall portfolio and boosting returns. Given their impact on consumer goods prices, commodities can also offer a hedge against inflation.
