{"id":175897,"date":"2020-09-30T16:06:00","date_gmt":"2020-09-30T20:06:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/trading-lessons\/synthetically-backed-commodity-etps\/"},"modified":"2026-06-23T13:02:07","modified_gmt":"2026-06-23T17:02:07","slug":"synthetically-backed-commodity-etps","status":"publish","type":"trading-lessons","link":"https:\/\/www.interactivebrokers.com\/campus\/trading-lessons\/synthetically-backed-commodity-etps\/","title":{"rendered":"Synthetically Backed Commodity ETPs"},"content":{"rendered":"\n

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Synthetically Backed Commodity ETPs<\/h3>\nHow do synthetically backed commodity exchange traded products (ETPs) work?\n\nAll ETPs, commodity or otherwise, allow investors to gain exposure to an underlying asset or benchmark. To do this, ETPs need to be underpinned by the assets they’re designed to track, either physically or synthetically.\n\nSynthetic replication is sometimes necessary, as purchasing the underlying assets may not always be a feasible way for ETP issuers to track performance, particularly for benchmarks with a large number of constituents, or for commodities, where storage can be expensive or goods can be perishable.\n\nTherefore, ETP issuers typically use derivatives to gain synthetic exposure to commodity underlyings.\n\nSynthetic commodity ETPs work by tracking total return indices underpinned by commodity futures.\n\nA commodity futures contract is an agreement to buy a specified amount of a commodity on a future date at a set price.\n\nAnd an ETP price reflects what is known as a total return exposure to the underlying commodity futures investment after fees and costs are deducted.\n

Total Return Components<\/h4>\nThe total return has three components:\n