How Do Commodity Markets Work? What Are the Risks Involved

question 73

Essay

How do commodity markets work? What are the risks involved when investing in the commodities market? What are the rewards or potential rewards?

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Definitions:

Alpha

A measure of the active return on an investment, indicating how much a portfolio has outperformed or underperformed its benchmark index.

CAPM

The Capital Asset Pricing Model, a theory that describes the relationship between the risk of a security and its expected return.

Expected Return

The anticipated value or profit that an investment is predicted to generate.

Benchmark Rate

The standard interest rate against which other borrowing or lending rates are measured, often set by central banks.