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Commodity pools are like managed futures funds that allow smaller investors to participate in larger investments and bypass margin requirements. They distribute risk and are a private venture for a select group of investors.
Commodity pools are funds that receive contributions from a number of investors for the purpose of engaging in trading in commodities and futures options. Sometimes referred to as managed futures funds, commodity pools share some characteristics with mutual funds, but operate differently. A commodity pool is an excellent way for smaller investors to join 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 otherwise not be within their reach. This makes the use of a commodity pool particularly attractive to smaller investors who are unable to meet the margin requirements that are often in place with larger investments. By contributing resources to a common pool, the group of investors can bypass the margin requirements that would apply to an individual investor and qualify for the deal based on their cumulative financial strength.
Along with the ability to engage in trading larger investments, a commodity pool also helps distribute the degree of risk among different investors. Limiting the degree of risk helps ensure that if the investment does not go as planned, investors will still be able to cover the loss without much difficulty. While it is true that the return one realizes from the investment will be shared by all parties, the return is often substantial enough to make the effort of investing across a commodity pool worth the effort.
There is another way 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 venture involving a select group of investors. No one may join an asset pool without the express approval of the other members.
A commodity pool is an investment approach often used by a small group of investors who wish to work together to build their investment portfolios. Family companies sometimes use a commodity pool as a component of the overall investment strategy, with only family members eligible to participate.
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