Are commodities ETFs risky as commodities futures in needing margin calls and limited time to hold or they are like stocks?

Question

Are commodities ETFs risky as commodities futures in terms of needing a large ammount of balance and margin calls and limited time to hold, or they are like stocks?

Answer 1

An ETF is a fund. A fund has managers who are paid from your expense ratio, e.g. 0.95% of fund assets annually, in the case of the FTGC commodity futures ETF.

You are paying the fund managers to manage the messy aspects of futures, such as margin and expiration.

Answer 2

If you're asking if you need to use margin or have a large cash balance as collateral, the answer is no.

ETFs and futures are totally different. With futures, you do not "buy" anything upfront. You make a "paper" gain or loss as the futures price moves up or down. if you have a paper loss, you are sometimes required to deposit margin to make sure that you don't lose more than you have.

A "commodity ETF" is designed to also have exposure to commodities, and may use futures or other derivatives to do so, but you buy units upfront and have a gain/loss as the commodity goes up and down. You don't need to provide margin because you own units of the ETF that still have value, so there's nothing that you "owe" the ETF. If the ETF goes to zero you just lost what you put in.

So they are "like stocks" in that way, meaning you can only lose what you put in.

Answer 3

Every type of security has a required amount of margin and margin maintenance set by Reg T (options, stocks, ETFs, leveraged ETFs, futures) and it varies by security type. Brokers have the right to require more.