The advent of commodity exchange-traded funds (ETFs) has provided both institutional and retail investors with new ways to gain exposure to a wide array of commodities, including precious metals, agricultural products, and oil and gas. All commodity ETFs are traded on exchanges like stocks, and many have very high liquidity. For example, the SPDR Gold Trust ETF (GLD), which tracks the daily London gold spot price, is the most traded commodity ETF, with an average trading volume of 8 million shares and market capitalisation of $31 billion in 2013.
Within the commodity ETF market, some funds are designed to track a constant multiple of the daily returns of a reference index or asset. These leveraged ETFs (LETFs) seek to maintain a constant leverage ratio by holding a variable portfolio of assets and/or derivatives, such as futures and swaps, based on the reference index. The most common leverage ratios are ±2 and ±3, and LETFs typically charge an expense fee. For example, the ProShares Ultra Long Gold (UGL) seeks to return 2x the daily return of the London gold spot price minus a small expense fee. One can also take a bearish position by buying shares of an LETF with a negative leverage ratio.