Get started with ETCs
What are ETCs?
Exchange-Traded Commodities (ETCs) allow you to gain exposure to the performance of a commodity, such as gold, oil or other raw materials, directly through your investment account without needing to buy or store the commodities yourself.
ETCs are debt instruments issued by a financial institution (the issuer), which means you are exposed to the issuer’s credit risk. Some may be physically backed, while others are synthetically replicated (find out what this means below).
ETCs can help diversify your portfolio by introducing exposure to commodities. However, the value of an ETC rises and falls with the price of the underlying commodity, which may potentially be highly volatile.
What are the different types of ETCs?
A physically backed ETC means that the issuer physically holds the underlying commodity, such as gold bars, and its value tracks the commodity’s price. While this reduces counterparty risk because the asset is held in custody, it is not entirely eliminated.
A synthetic ETC means that the issuer does not hold the underlying commodity, but instead uses derivatives or other financial instruments to replicate its performance. This introduces additional counterparty risk, as returns depend on the issuer’s financial obligations.
Some synthetic ETCs may be leveraged and/or inverse and carry higher risk. Read more about these in this FAQ.
Do ETCs pay out dividends?
ETCs typically don’t pay out dividends.