Advantage 1: A good entry point for retail traders to the commodity market. The commodity marketis known for its dominance by large players, investment firms and commodity businesses. For many retail investors, competing against the big boys on their own is difficult. By pooling their funds together with other investors, retail traders can leverage the collective power in the market.
Advantage 2: More diversification opportunities. Commodity pools may be able to allocate their investment across a more diverse range of commodity products than many traders could on their own. A pool managing a total of $ 10 million from 100 investors will likely have more diverse options on its hands than a commodity trader with $ 100,000. The better diversification will serve as an important risk hedge, something that is extremely useful given the volatility of the commodities market.
Advantage 3: Strong regulatory protections. In most cases, commodity pools are highly regulated investment vehicles. With the exception of the smallest pools, most commodity pools and CPOs must be registered with the CFTC. For less experienced investors, these regulatory protections make the larger commodity pools a much safer option than going solo and ending up with an unscrupulous, fraudulent broker.
Advantage 4: Tax benefits. Regardless of how long you’ve held an investment in a commodity pool, you will be taxed on capital gains using the "60/40" rule. Under this rule, 60% of your gains will be taxed at the long-term capital gains rate, which for most investors is lower than the short-term rate. Only 40% will be taxed at the typically higher short-term capital gains rate. This rule is beneficial to commodity traders who prefer to hold on to their investments for less than 12 months. As such, it is great for active commodity traders who usually place trades with short-term and medium-term intents.