Commodity Brokers

Commodity Broker: What You Need to Know to Select the Right Broker for You

Executive summary about commodity broker by Merv Thompson

Futures trading should be treated as a business. Part of this business involves qualifying the right commodity broker to facilitate your trading activities. If you take the time and do the homework you will be rewarded with a long-term satisfying business relationship between you and your broker.

The following list of questions is designed to provide a consistent process of qualifying each firm. Most of the information can be obtained from the respective commodity brokers website. Some will require email questions or personal contact.

Question #1 - Is the commodity broker an IB or FCM? An IB (Introducing Broker) must use an FCM (Futures Clearing Merchant) for trade clearing and order execution among other things.

Question #2 - How Many Years in Business? Stick with an established firm.

Question #3 - NFA and CFTC Data? All brokers must be registered. This group conducts Complaint investigation and regulatory action against members. You should take the time to visit the NFA website at http://www.nfa.futures.org/basicnet/Welcome.aspx. Enter the Commodity brokers name and document any Regulatory actions and any Complaints. If you are profiling a firm that has regulatory actions or a large number of complaints, you may want to consider moving on to another commodity broker.

Question #4 - Minimum $$ to Open Account? It depends on the type of trading you do and the markets you trade.

Question #5 - How will I receive Account Statements? The other side of the spectrum is the futures brokers that mail your trade confirmation statements and monthly statements. I prefer the electronic statements so that I can verify trades in a timely fashion. Most will provide real-time online account information.

Question #6 - 24 Hour Customer Service/Trading Desk? Maybe your computer crashes, maybe you have suddenly lost Internet access, maybe the trading platform is not functioning. Be aware of possible added costs to use the Trading Desk.

Question # 7 - Multiple Trading Platforms to Choose From? Some Brokers offer their own platform. Other Brokers only offer third party fee based platforms. Take your time to probe for the answers to this question. The costs vary greatly, from cost-per-trade to monthly fee plus cost per trade. Also remember that if you need live streaming data you will possibly be charged the Exchange Data Fees.

Question #8 - Commissions and Fees? With few exceptions, I can guarantee that you will not find full disclosure of trading costs on any futures brokers website. I suggest you contact the perspective commodity broker and run through a simulated trade asking for a breakdown of costs associated with the transaction.

Question #9 - What else can I get and is there a Charge? Charting, research, newsletters, educational materials, webinars, live futures trading news services, pamphlets, booklets, leaflets, trial subscriptions etc.

Question #10 - Are the Floor Traders employees of the Firm or are they Contracted? This question is important if you are trading markets that are executed in the live trading pits. Many commodity brokers do not have Traders in the Trading Pits and therefore contract the order execution out to Independent Floor Traders. The brokerage firm has less control over the Independent Trader, opening the door to unfavorable order fills.

Selecting A Commodity Broker

Executives Summary About Selecting A Commodity Broker By Stephen Bigalow

Understanding the dynamics involved in choosing a commodity broker is as much about understanding yourself as it is getting to know the commodity broker. Since commodity trading can be more involved than trading stocks, it is more important to select the right commodity broker than it is to select the right stock broker.

About Commodity Futures and Commodity Brokers

Commodity future contracts can be written for any type of commodity such as gold, lumber, livestock, currency, and many others. Two Types of Commodity Brokers
Each type of commodity broker has advantages and disadvantages that should be considered when making a decision.

Full Service Brokers

This type of commodity broker is usually recommended for new or inexperienced investors, or for those investors who invest in numerous markets. Full service commodity brokers usually provide more information, advice and help to their clients; they often work with investors to create personalized investment strategies. The fees charged by these commodity brokers are generally higher because of the extra level of service they provide. Full service brokers that specialize in trading commodities are also known as Introducing Brokers.

Discount Brokers

This type of commodity broker typically works better for more successful traders. How Do You Find the Right Commodity Broker?

Some of the traits that you should seek in your commodity broker are:

Experience

Chances are if your commodity broker doesn’t have much experience, the results you receive will be spotty at best. You don’t want your commodity broker to learn how to invest at your expense.

Support

Many commodity brokers will give you a free trial to “test drive” their service. Successful trading can be the result or the victim of a commodity broker decision.