It is an index of a select physical commodity prices or commodity futures prices. The index tracks a basket of commodities to measure their performance. These indices are often traded on exchanges, allowing investors to gain easier access to commodities without having to enter the futures market. The value of these indexes fluctuates based on their underlying commodities, and this value can be traded on an exchange in much the same way as stock index futures.

The constituents of a commodity price index can be broadly grouped into the following categories:

* Energy (such as coal, crude oil, ethanol, gas oil, gasoline, heating oil, natural gas, propane)

* Metals

Base Metals (such as lead, zinc, nickel, copper)

Precious Metals (such as gold, silver, platinum, palladium)

* Agriculture

Grains (such as cocoa, corn, oats, rice, soybeans, wheat)

Softs (such as sugar, butter, cotton, milk, orange juice)

Livestock (such as hogs, live cattle, pork bellies, feeder cattle)

There is a wide range of indices on the market, each of them varying by their components. The Reuters/Jefferies CRB Index, which is traded on the NYBOT, comprises 19 different types of commodities ranging from aluminium to wheat. Other prominent ones include Dow Jones-UBS Commodity Index, Goldman Sachs Commodity Index, Standard & Poor’s Commodity Index, NCDEX Commodity Index.

These indices vary in the way they are weighted. Some indices are equally weighted and others have a pre-determined, fixed weighting scheme.

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