Exchange Traded Commodities, or ETCs for short, are bonds that are linked to the performance of raw materials. These are bonds that are traded on the stock exchange. The term of ETCs is unlimited. ETCs allow investors to engage in product output without buying them directly.
The raw materials can be used as the basis of the security in various forms. Special commodity indices can be used for this purpose. The raw materials in which you can invest with ETCs come from the areas of energy sources like; crude oil or natural gas, industrially used raw materials such as copper or zinc, precious metals such as gold, or from the agricultural sector – such as corn, wheat or cocoa. In the case of some exchange- traded commodities , the providers provide a certain safeguard for the repayment by physically depositing the commodity in question with a trustee.
Possible goals: When could exchange traded commodities be useful for me?
An investment makes sense for those investors who want a very special investment in commodities for structuring and diversifying their assets and who want to use certificate structures at the same time. You can use it to invest in the performance of raw materials.
Risks: What are the dangers of investing in Exchange Traded Commodities?
Issuer Risk: ETCs are offered in the form of bonds. They are therefore associated with what is known as an issuer risk. This means: the issuer as the debtor can default. And only if the issuer is solvent can you get money back from the investment (credit risk / insolvency risk).
Price: Change Risk: The value of ETCs depends on the development of the commodity value on which it is based. With its fluctuations, the price of the security also changes. In the case of commodities, these fluctuations in the underlying value are triggered by many different factors that have an impact on and ultimately determine the market price. Changes in the political framework in a country can influence the prices of a raw material extracted there just as much as agreements made between cartels of raw material producers. A total loss of the money you invested in such a system can therefore never be ruled out
Currency Risk: ETCs can be denominated in foreign currencies. Many commodities – for example precious metals – are traded less in euros and mainly in US dollars. This means that investors can face foreign currency risks here. Don’t underestimate them. Some ETCs have currency hedges.
Use: What can investment in Exchange Traded Commodities do for me?
In contrast to investments in commodities and futures exchanges, with ETCs you have the option of making smaller investments in raw materials.
They offer the chance to participate in the expectation of rising raw material prices or rising raw material indices without having to buy these raw materials yourself. The decisive factor is the increase in value, not the distribution.
Own duties: What obligations and costs do I have to face when purchasing Exchange Traded Commodities ?
When purchasing ETCs, fees for this transaction may be due in addition to the purchase price itself. There are also ongoing costs – in addition to custody fees, product and currency hedging fees may also be charged. The sale also incurs costs. When investing in ETCs, you need to find out for yourself whether the prices and fees charged are justified. This can be difficult for retail investors.
Termination: Can I sell Exchange Traded Commodities again at any time?
The term of the bond is unlimited. ETCs are traded continuously on the stock exchange and can then be sold on the market. However, depending on the market situation, trading in ETCs may be restricted or not possible at all. Make sure that the issuer has been granted special termination rights. This is because the point in time of termination chosen by this could fall into a market phase that is unfavorable for you as an investor (reinvestment risk). Such clauses expose the investor to the risk that prices may change to their disadvantage.
Where can I buy Exchange Traded Commodities?
You can buy ETCs from savings banks, banks and other financial services institutions. This is possible both with and without advice.
Who are exchange traded commodities suitable for?
ETCs are particularly suitable for those investors who already have a large portfolio of securities and want to invest in the special area of commodities in order to diversify the risks of their investments. Because in the raw materials sector, the performance is generally independent of that in other investment areas. Before you buy ETCs, you should therefore familiarize yourself fully with this type of investment: Before you decide to invest in ETCs, you should carefully consider the advantages and disadvantages of this particular investment compared to the specific characteristics of other types of investment in commodities. You as the investor bear the risks associated with the investment.