The BDI is not an investable index. It does not trade on any exchange. There is no underlying security or securities that comprise the index. Rather it is, by construction, an index of average dry bulk shipping quotes over some 20 ocean routes obtained from a global network of shipping agents and brokers.
Investors can use the BDI to help trade or invest in related financial instruments. We can offer the following summary for interested readers.
The most direct instrument is forward freight agreements, which cover various shipping routes. The Baltic exchange publishes a variety of spot freight rates, which are the basis for settling these contracts monthly.
Various futures exchanges also offer freight futures contracts, including the European Energy Exchange and the Singapore Exchange.
Alternatively, investors can invest in the BDI more indirectly through shipping company equities.[3] We caution that shipping profitability depends not only on the level and trend of the BDI but on what is driving it. For example, the BDI may be rising because of higher oil prices – but profitability may fall if shippers can’t pass on that higher cost. Another strategy is going long or short oil depending on whether the price of oil is rising or falling; the idea is a rising BDI implies more shipping and higher demand for fuel. More generally, investors can monitor the BDI for a leading indicator of whether a recession or economic boom is coming, although these signals can be obscured by shipping technicals.