Commodity Pool - Explained
What is a Commodity Pool?
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Table of ContentsWhat is a Commodity Pool?How Does a Commodity Pool Work?Commodity Pool OperatorAdvantages of a Commodity Pool
What is a Commodity Pool?
A commodity pool is a type of investment trust or syndicate where different traders pool funds together to trade in futures and commodities market. In a commodity pool, several investors combine their contributions solely for the purpose of trading in the commodity or futures market. The Commodity pool is a private investment fund that allows many investors gain leverage and maximize profits in the futures and commodities markets by trading as a single entity. In the United States, the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) are the regulatory bodies for commodity pools.
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How Does a Commodity Pool Work?
Commodity pools is the legal term given to funds combined from various investors for the purpose of trading in futures and commodities by the NFA. Commodity pools are otherwise called managed funds, the goal of these polls is to engage in large trades that would otherwise not be carried out by single investors. The investors, therefore, combine their resources and trade as a single entity to have better leverage. A commodity pool is similar to a mutual fund given that both funds seek to execute trades that single investors cannot take on. While mutual funds are registered with the Securities and Exchange Commission (SEC), commodity funds are registered with the Commodity Futures Trading Commission (CFTC) or CTA.
Commodity Pool Operator
A commodity pool operator is a professional manager who can be an individual or an organization that manages a commodity pool. Private pools are commonly categorized as commodity pools, this includes syndicates, investment trust and other funds designated to be traded in the futures and commodities markets. The Commodity pool operators decide the best futures or commodities to trade in so as to realize a maximum profit for investors. This operator receives the funds combined to form the commodity pool and make professional use of the funds.
Advantages of a Commodity Pool
There are some benefits that investors can derive from a commodity pool, the major ones are;
- A commodity pool allows investors gain access to commodity futures markets by pooling their resources and trading as a single entity.
- Individual investors do not have access to trade in such market given their huge nature but a commodity pool allows investors gain leverage in trading in the markets.
- A commodity pool offers tax benefits to investors given its private investment structure.
- Commodity pools also reduce trading risks for investors and help them maximize profits.