A closer look
Reading the prospectus is usually a good idea before buying paper oil on your smartphone app. During the 2020 pandemic crash, amateur traders flooded into synthetic commodity ETFs like the United States Oil Fund, assuming they were buying actual barrels of cheap crude. Instead, they were holding highly complex, rolling futures contracts. When the physical storage ran out and crude prices famously crashed into negative territory, the mathematical structure of these derivatives obliterated retail portfolios overnight. It was a brutal lesson in the difference between owning an asset and owning a piece of paper guessing its price.
