What you can own
Commodity
A raw physical good — oil, gold, wheat, copper — traded in standardised units.
How it works
Commodities produce no cash flow. Their return comes entirely from price change, plus or minus the cost of holding or rolling futures contracts.
They are held mainly for diversification and as a partial inflation hedge, both of which work inconsistently.
Where it misleads people
Most commodity exposure is obtained through futures, not the physical good. When futures further out cost more than nearer ones, rolling positions loses money continuously even if the spot price never falls.
Related terms
- Futures contractA standardised, exchange-traded agreement to buy or sell something at a set price on a future date.
- ContangoWhen futures prices further out are higher than nearer ones, so rolling a position costs money.
- InflationThe rate at which prices rise, which means the rate at which each pound or dollar buys less.
- GoldA precious metal held as a store of value, with no yield and no cash flow.
Mentioned in
More in What you can own
- Common stock
- Commercial paper
- Funds from operations
- ADR
- Structured product
- Money market fund
- REIT
- Preferred stock
All 10 What you can own terms · The full glossary, 433 terms
Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.