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Commodities have become a more mainstream investment class in the last decade, primarily due to the fact the commodities have performed much better than other investments. The tailwind behind commodities is driven by a growing population in the emerging countries and demand for commodities has soared. Short of a global financial meltdown, demand for commodities is projected to remain strong into the foreseeable future.

Commodity futures contracts had been the most common way to invest in commodities, but they aren’t exactly considered a mainstream investment by the general public. In reality, most people have virtually no idea how to buy or sell a futures contract. Trading commodity futures contracts is more complicated than stocks and the risks can be much greater. For those facts, it is easy to see why many people have avoided investing in commodities throughout the years.

If you are willing to put in the time, a general understanding of trading commodities can be achieved in a relatively short period of time. However, learning the basics and being a consistently profitable commodities trader are two different things. Fortunately, many new investment vehicles are now available to make investing in commodities much easier and probably less risky.

Commodity ETFs

There are currently more than 100 commodity exchange traded funds (ETFs). Some are actually exchange traded notes (ETNs) but they are basically the same thing as far as the average investor is concerned.

Commodity ETFs are basically investments in commodity futures contracts, but they are unleveraged. This means you cannot lose more than your initial investment, like you can when you trade futures contracts. There are so many commodity ETFs, that you should be able to find one that meets your objective. Some only invest in one commodity, while others invest in a diversified group of commodities.

Commodity ETFs trade very similar to a stock. You can buy and sell them with an account at any brokerage firm — Schwab, E-Trade, Ameritrade. It is easy and cost effective to buy these investments for the long term as part of your overall investment portfolio.

Commodity Stocks

There are obviously many publicly traded companies that are devoted to the production, manufacturing, distribution or selling of commodities. These stocks are not as pure of a commodities play as futures contracts or commodity ETFs, but their stocks tend to move along with the price of the underlying commodity. An example might be Freeport McMoRan. They are one of the largest copper mining companies and the price of the stock tends to move closely with the price of copper. Oil companies, gold mining companies and farming equipment companies would be examples of commodity based companies.

Sometimes the prices of these stocks move in unison with their related commodity prices and sometimes they don’t. The stock market can be under the influence many external factors from day to day, but the overall trend should reflect that of the commodity. It is usually better to buy a group of stocks to minimize the risk and get a better representation. Some companies might be in the right industry, but not manage their business well.

It has become much simpler in recent years to invest in commodities. There are more investment opportunities in commodities and there will probably be even more in the future if commodities continue to perform well. An investor can buy commodity ETFs or commodity based stocks or mutual funds and tuck them away in their investment portfolio. There is no need for watching quotes on the market all day to monitor these investments. A review once a month or quarter should be adequate.

On the other hand, if you prefer to trade commodity futures contracts, there are many great tools at your disposal. There are some excellent online trading platforms to trade, train and test your ideas. The amount of trading research available online has grown substantially. This is helping to make commodity traders much more informed. The ease of learning how to trade commodities continues to lower the barriers to enter this arena. It is simply a matter of personal preference, but there are many ways to invest in commodities.