What does Commodity Index mean?
An index is a statistical measure of the changes over a period in the price of a basket of commodites. A commodity index tracks the group of commodities to measure their price movement on a daily, weekly, yearly basis. The basket is selected in such a way that it represents the wider commodities markets. There are various types of commodity indices depending on their compositions and weightages. For example, the Bloomberg CMCI family covers 28 commodity futures contracts representing the energy, precious metals, industrial metals, agricultural and livestock sectors.
Futures Knowledge Explains Commodity Index
Commodity Index is a broad measure of the commodity futures market. These indexes are traded on exchanges just like an equity index like the S&P 500. The value of these indexes fluctuate based on their underlying commodities fluctuations.
Indices are used as benchmarks to monitor markets and judge market performance. Rather than a broad group of commodities, a commodity index may also be constructed for specific class of commodity. For example, the Dow Jones Crude Oil Index is designed to track the crude oil market through futures contracts.