UK Accounting Glossary
A commodity index tracks the price of various types of commodities. A commodity index can track the price of commodities in the spot market or in the futures market. A commodity index is traded like any other indices and allows investors to invest in commodities without purchasing or storing the commodity itself. A commodity index can be grouped into subcategories such as energy, metals, agriculture, livestock, etc. A commodity index is calculated in accordance with a specific set of rules defined by the financial institution that is maintaining the commodity index. A commodity index is calculated by applying percentages to the price of each commodity group it includes. Depending on the commodity index, those percentages are based on liquidity, production, and/or how significant a commodity subgroup is in the world economy. The first and still re-known commodity index is the CRB Index now called the Reuters Jefferies CRB Index. Other popular commodity indices are the Dow Jones-AIG Commodity Index, the Deutsche Bank Liquid Commodity Index, the SP GSCI Commodity Index. Various Exchange-traded Funds (ETFs) and mutual funds offer individual investors a relatively easy method by which to trade a particular commodity index.
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This glossary post was last updated: 4th February 2020.