Commodity Pool (Managed Futures Funds)

Definition

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).

Related Terms

commodity, commodity trading advisor, commodity pool operator, Commodity Futures Trading Commission