Understanding and Trading Commodity Indexes: A Comprehensive Guide
You can use any commodities index of your choosing to analyze the performance of the commodities market. Like a stock index, a commodities index simply compiles statistics from a broad range of commodities into one, simple ticker. This ticker can be purchased or sold like a stock if you would like to invest in the commodities market as a whole instead of a specific commodity.
Trading an Index
When you trade an index, you are trading at the value of its underlying assets. It is similar to trading shares in a mutual fund that trades at the value of its entire portfolio. However, you can directly invest in a commodities index and do not need to do so through a fund.
S&P GSCI
The most common commodities index is the S&P GSCI, which is like the S&P 500 of commodities contracts. It was originally developed by Goldman Sachs, but now trades on the Chicago Mercantile Exchange under the S&P brand name. When you purchase this index, you are essentially purchasing a tiny stake in all of the commodities it tracks and represents. Since this is a diversified group, you are expanding your portfolio despite the fact you are investing in just one, commodities-only purchase.
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