Figure 1 commodity basket
Key characteristics of an ETC
Exchange traded commodities trade just like shares. They are a simple and efficient way to gain exposure to commodity markets.
Although they are regarded as an alternative asset class, they are becoming increasingly more popular.
ETFs can have tax efficient benefits. Because they are generally traded through a SIPPS or ISA account, there is no stamp duty payable.
Commodities have a low correlation to equities and, as such, offer balance to a portfolio.
Can be traded both long (buy) and short (sell).
You can gain multiple asset exposure in one index.
The Exchange Traded Commodity will rise and fall tracking the underlying asset(s).
An ETC will either track the spot price (this is the price for immediate delivery) or the futures price of a commodity (futures being a contract for delivery at a specified future date).
Difference between an ETC and an ETF
An ETC offers exposure to single commodities and commodity baskets only. An ETF (Exchange Traded Fund) offers exposure to Equities, Money Markets, Bonds, Real Estate and Commodity baskets.
For information on commodity trading at Pepperstone, click here.