A commodity pool operator is an individual who performs a similar role for a commodity pool that a fund manager does for a mutual fund. The commodity pool operator takes the funds from investors and combines them into a single pool. The commodity pool operator then use the money to purchase futures contracts and options on commodities. In most cases, this individual is a very experienced trader in the commodities market and is aware of many profitable trading strategies. In return for this service, the individual is compensated by the investors of the commodity pool.
A commodity pool is an investment group that invests in the commodities market. Most of the time, this type of pool is made up of individuals who have excess money to invest but do not have a great deal of experience in the commodities market. These investors know there are good opportunities in the commodities market, but they do not feel comfortable navigating the market on their own. By combining their money with other investors, these individuals can get involved in the commodities market through a commodity pool.
A commodity pool operator is the individual in charge of the commodity pool. This person oversees the operations of the commodity pool and makes the individual investing decisions on behalf of the group. This person will take the money provided by investors and use it to purchase options or futures contracts on commodities. For example, he or she might decide to purchase a futures contract on corn, oil, or wheat. The commodity pool operator will then determine how long to hold the contract and when to sell it.
The money generated from the trading decisions of the commodity pool operator goes back into the fund. Periodically, profits from the commodity pool will be distributed to the investors in the pool. Part of the money generated in profits will also go to the commodity pool operator. Many times, this amounts to a certain percentage of the profits.
In order to become a commodity pool operator, one must be very knowledgeable about the commodities market. Most of these individuals have spent many years trading in the commodities market and are well-versed in a number of different trading strategies. These individuals have to be able to perform under pressure and provide consistent returns to investors.