More and more retail investors are turning to commodities trading after two consecutive years of strong returns despite fears that they could suffer huge losses or disrupt a complex and volatile market. I am drawn in.
Retail trading volumes for commodity futures and the largest commodity-focused investment funds surged in 2022. Enter a highly volatile market dominated by specialized players.
Average daily volume of CME gold, oil, silver and copper microcontracts (used as a proxy for retail activity) increased 93% year-over-year at the end of November.
Volume of Invesco’s $6 billion PDBC ETF, the largest broad commodity fund popular with retail investors, surged by more than 60%, almost tripling from 2020. percent.
“We got everyone’s attention last year because people were nervous about inflation,” said Kathy Kriskey, commodity ETF strategist at Invesco. I was. [too]”
The surge in trading activity came as the S&P GSCI index of raw material prices surged almost 9% last year as the war in Ukraine restricted supplies.
According to Bank of America, commodities were the best-performing major asset class over the past two years and were one of the two asset classes to be profitable alongside cash in 2022. Commodity-focused companies are also the only subsector to rise in the U.S. stock market, with the S&P 500 energy subindex he up 54% as of Dec. 21.
But despite strong full-year returns, commodities trading remains risky and markets are prone to extreme volatility that could catch retail investors off guard. For example, in April 2020, major US crude oil contracts fell below zero for the first time. Many retail traders and platforms do not consider the possibility of negative prices, and the retail broker’s IBKR has increased to 88 million to cover the margins of customers hit by the price crash to cover his call. lost a dollar
Trabue Bland, senior vice president of futures exchanges at Intercontinental Exchange, warned at a recent industry conference. . . whatever you put up with [broker] In just a few minutes.”
In addition to the risks for the retailers themselves, Brand said he was also concerned about the potential impact on other market participants, from airlines to farmers.
“People are counting on us for the price. I don’t want to see people betting on something they make a living out of,” he said.
Modern indices such as Invesco are using strategies to sidestep some of the problems that plagued early commodity funds, which sometimes lost money even when prices rose due to pricing anomalies in futures contracts. The has been updated.
“We’ve put a lot of effort into educating our investor base… Either they’ve never touched commodities and don’t understand them, or they knew 10 years ago,” Invesco said. Chriskey said.
She emphasized: [commodities] To make an impact on your portfolio. .. we know he talks a lot about 5% exposure and we don’t want investors to come in and say ‘I’m he’s 15% commodities’. ”
Some companies encourage riskier bets. Hong Kong-based fund his provider CSOP Asset Management announced late last year that it would begin offering leveraged his exposure to an index of large oil and gas stocks. Leverage allows investors to double their potential profits, but it also allows them to quickly wipe out their capital when the stock price falls.
One of the most popular tactical ETF providers for retail investors, ProShares operates eight funds that offer leveraged exposure to commodity futures. Leveraged short-exposure natural gas ETFs are down more than 93% year-to-date.
ProShares CEO Michael Sapir has acknowledged that leveraged commodity trading can be risky, but retail investors have the same options available to institutional investors. said it was worth having.
Listed commodities that offer reverse oil and gas exposure have been hit hard, down nearly 90% since the start of the year as prices rose due to the war in Ukraine, according to Morningstar.
“Commodities can surge and crash without investor preparation, more so than equities,” said Todd Rosenbluth, head of research at Bettafi. He said retail investors deserve to have the same options available to institutional investors. “But is it a good thing that everyday investors have exposure and have to manage the roll costs and volatility that come with commodities? That’s a fair question.”