How do commodity ETCs work?
There are two types of commodity ETC
Physical ETCs buy and store the commodity in vaults or warehouses. This is most common in precious metals like gold or silver. However, in some cases holding the underlying physical commodities would be extremely difficult. Wheat, for example, would spoil if held for any length of time, and the cost of storing millions of barrels of oil would be prohibitive.
Synthetic ETCs, rather than taking delivery of the physical commodities, and tracking the price directly, they use the futures market to gain exposure to movements in the price. Please note however, the use of futures is not confined to commodities which are difficult to store. Each ETC's prospectus offers details. You can access most prospectuses on the 'at a glance tab' of the ETP you're interested in on our website. Futures-based commodity ETCs are complex investments.