Advantages and Risks of Commodity Futures Investment

In the global financial markets, commodities have become an essential component of investment portfolios due to their ability to provide diversification and inflation protection. Commodity futures, in particular, allow investors to speculate or hedge against price fluctuations.

Assume you are a portfolio manager considering an allocation to commodity futures for your clients. Discuss the advantages and risks associated with investing in commodity futures. In your answer, be sure to include examples of how these instruments can be used for both hedging and speculation.