Jan 12 2010

Investing Term Tuesday: Commodity Index.

A commodity index is an index that tracks a collection of commodities in order to measure their performance.

Commodity indexes are often traded on exchanges, such as the Chicago Board of Trade (CBOT). By being traded on an open exchange, investors gain access to commodities without having to deal in the futures market.

The value of a commodity index changes daily and is based on the value of the underlying commodities.

There are many commodity indexes on the market, all varying by the types and weightings of commodities being tracked. The Reuters/Jefferies CRB Index, for example, is comprised of 19 different kinds of commodities which range from wheat to aluminum.

As with stock and bond indexes, some commodity indexes weight all their holding equally , while others have a fixed weighting approach.


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