Commodity prices have soared the last two weeks as a result of the Russian invasion of Ukraine, drawing novice investors looking to make a quick buck. Many are already getting burned by their lack of knowledge.
Investing in commodities is more complicated than investing in stocks. In commodities, all the action occurs in the futures market because there aren’t any liquid markets for things like spot oil, gas or corn. Then there’s the margin system — to trade commodities futures you must deposit some initial margin into an account and then you are subject to the ongoing vagaries of adhering to margin requirements. But most of the investing public doesn’t want to deal with all that, so they just gravitate to the growing number of exchange-traded funds tracking single commodities or baskets of commodities. Here, too, the risks are different than with an ETF that owns stocks.