What is a Commodity Pool?

Malcolm Tatum
Malcolm Tatum

Commodity pools are funds that receive contributions from a number of investors for the purpose of engaging in trading commodity and futures options. Sometimes referred to as managed futures funds, the commodity pool shares a few characteristics with mutual funds, but operates in a different manner. A commodity pool is an excellent way for smaller investors to join together and take part in a larger investment.

A commodity pool is an excellent way for smaller investors to join together and take part in a larger investment.
A commodity pool is an excellent way for smaller investors to join together and take part in a larger investment.

Just as with mutual funds, investors who choose to participate in a commodity pool are able to engage in trades that would not be within their grasp otherwise. This makes the use of a commodity pool especially attractive to smaller investors who are not able to meet the margin requirements that are often in place with bigger investments. By contributing resources to a common pool, the group of investors can get around the margin requirements that would apply to the individual investor and qualify for the trade based on their cumulative financial strength.

Along with the ability to engage in the trade of larger investments, a commodity pool also helps to spread the degree of risk among several investors. Limiting the degree of risk helps to ensure that if the investment does not go as projected, the investors will still be able to cover the loss without a great deal of hardship. While it is true that the return that is realized from the investment will be shared by all parties, the profit is often substantial enough to make the effort of investing through a commodity pool worth the effort.

There is one other way that the commodity pool is different from a mutual fund. Mutual funds are open to public participation. A commodity pool is a closed investment opportunity that is considered a private enterprise that involves a hand picked group of investors. No one may join into a commodity pool without the express approval of the other members.

A commodity pool is an investment approach that is often used by a small group of investors who wish to work together on building their investment portfolios. Family corporations sometimes use a commodity pool as one component of the overall investment strategy, with only family members eligible to participate.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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