Commodity and Derivatives: Learn more at Real World EDA

Creating the road towards understanding.

What are Derivatives?

Commodities are raw materials or agricultural products that can be bought and sold. They are one of the major asset classes of investment. 

Commodities are traded on a futures market. In this market, the people who produce goods and the people who buy them bargain for payment. These contracts also set a future date on which the goods will be delivered. 

Commodities are most likely not a good option for you if you are a new or individual investor.

When you trade commodities, you are paying for the right or obligation to buy or sell the underlying future, which itself is a right or obligation to buy or sell the underlying asset, without collecting the asset.

This can be confusing and risky for new buyers who don't have the background to know how prices and goods may move in the future. The funds you need to buy and sell commodities in bulk may also be out of reach.

The government body in charge of regulating these trades, the Commodity  Futures Trading Commission (CFTC), warns that investors should be wary of high-yield investment opportunities in futures. This includes foreign exchange (forex) options. These are often areas of fraud. 

There are many asset classes you can invest in other than commodities. These include:

• Stocks
• Bonds
• Mutual funds
• Exchanged Traded Funds (ETFs)
• Real estate
• Real Estate Investment Trusts Funds (REITs)

• Vanguard Personal Advisor Services
• Vanguard Digital Advisor
• Vanguard Betterment