Commodities are raw materials such as grains, metals, oil and livestock. The exchange of these materials and products has evolved over time from unregulated merchant and supplier contracts, to forward contracts, to commodities derivatives. What this means is the trade of commodities has become increasing refined with the advent of enhanced logistics, market regulation, massive amounts of product, and electronic means of recoding transactions. There are several ways to participate in the trade of commodities and several key aspects surround the buying of commodities.

*Commodities are traded as 'futures contracts'

*Futures contracts may be purchased directly or indirectly

*Both Exchange Traded Funds (ETF's) and Brokers participate in commodities purchases

*Leveraged buying of commodities can increase risk significantly

*Futures commission merchants facilitate the trade of commodities futures

*Several commodities exchanges exist worldwide and in the U.S. are regulated

INDIRECT EXCHANGE OF COMMODITIES:

Indirect exchange of commodities may take place through the buying and/or selling of shares of managed funds that themselves trade in commodities via futures contracts. These funds are called exchange traded funds or ETF's and may have a 1-2% fee associated with the management of the fund. Through the trade of ETF's, the risk of trading commodities directly can be reduced via 1) knowledgeable management and experience of the fund, 2) diversification of commodities contracts, 3) and indirect involvement in international trade (investopedia.com). ETF's may participate in purchasing of particular commodities or a broad range of commodities.

Additionally, the companies that produce commodities themselves can be traded via mutual funds and/or stocks. These funds and/or stocks are bought and sold through financial institutions that offer brokerage services and offer an alternative to direct exchange of commodities by partial ownership of the commodities producer that's assets include commodities. Depending on market conditions this type of trade may be more or less risky and garner different yields than direct trade of commodities. Commodities can also be exchanged indirectly through a broker that is licensed in commodities trading. (investopedia.com)

DIRECT EXCHANGE OF COMMODITIES:

Direct exchange of commodities is performed through futures exchanges via futures commission merchants (investopedia.com). Within the United States, these merchants/brokers can be

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