The term commodity pool refers to an enterprise consisting of individual investors combining their funds to trade in futures contracts and options as a single entity. Commodity pools allow investors to gain leverage while reducing risk.
Explanation
Also referred to as managed futures funds, commodity pool is a legal term defined by the National Futures Association. The Commodity Futures Trading Commission (CFTC) and the National Futures Association regulate the operation of commodity pools.
Commodity pools are oftentimes compared to mutual funds since they allow individual investors to pool their funds and conduct trades that would otherwise not be possible. Since the investors' funds can be spread over a larger number of trades, commodity pools can also reduce risk through diversification. Unlike mutual funds, however, commodity pools are private enterprises. Hedge funds are oftentimes commodity pools, and as such, must be registered with the CFTC as a commodity trading advisor (CTA).
The term commodity refers to any mass-produced, unspecialized product which is oftentimes used as a raw material when creating a more specialized product. While the quality of a particular commodity may have specifications, its production oftentimes spans many suppliers.
The term commodity trading advisor refers to an individual or organization that provides advice to a pool of investors in futures contracts and commodity options. Commodity trading advisors are regulated by the Commodity Futures Trading Commission as well as the National Futures Association.
The term commodity pool operator refers to an individual or organization that is responsible for soliciting funds and investing those funds in futures and options contracts. Participating in commodity pools allows investors to gain leverage while reducing risk.
The term Commodity Futures Trading Commission refers to an organization responsible for fostering open, transparent, competitive, and financially sound markets. The Commodity Futures Trading Commission is an independent governmental organization.