Commodity ETF

You want to invest in the trend of rising oil prices, but you can’t actually purchase 100 options contracts of physical oil and take delivery of oil barrels in your backyard. The more popular way to invest directly into commodity prices is to buy electronic-trading funds that attempt to replicate the price movements of the underlying physical commodity.

These funds trade like stocks; however, there are risks due to the fact that they utilize derivatives contracts to mimic the performance of commodity prices. For example, oil ETFs can experience significant losses should the futures contracts in which they invest fall into contango.

Some commodity ETFs, like the SPDR Gold (GLD), actually purchase physical gold, and stores it in vaults in London. Maybe that will make you feel better about replicating gold prices, but you never actually own any of the gold yourself unless you have 100,000 shares of GLD. So...you really own a piece of paper, or a number on a screen.

Then there's the United States Oil Fund (USO), an energy ETF, which attempts to replicate U.S. oil prices by buying and rolling over WTI futures contracts. That comes with its own set of risks and costs that might not lead to higher gains while oil prices are rising in the short term.

Yeah, these things aren’t as simple as the people selling them make them out to be.