You’ve decided that you want to participate in the commodity market or commodity futures market. Now you have to find a commodity broker, but how do you start? To get the most out of your time and money, here are some tips you can follow to get a good broker.
Introducing Broker or Futures Commission Merchant
An introducing broker is a smaller firm that has the sole purpose of soliciting accounts for future commission merchants. An introducing broker firm doesn’t accept money from the client in its own name. Instead, all the customers are sent directly to a futures commission merchant. The introducing broker will rely on the future commission merchant to handle clearing trades and exchanges. In short, an introducing broker is your point of contact.
A futures commission merchant is a firm that accepts orders of execution of a commodity transaction for clients. These businesses accept payments and handle the daily trading activities you’d expect from a broker. A futures commission merchant is the firm you’d visit if you had any questions or if you require assistance.
Research Your Broker
There are thousands of brokers available across the United States, and there is an especially high concentration in the larger cities like New York and Chicago. Many stockbrokers are not licensed to participate in the commodities market, meaning they have little experience with regulations and may take part in illegal trades. Research local brokers to see if they’re registered with the United States Commodity Futures Trading Commission. This is a government agency that was created to regulate commodity futures and protect investors against manipulation, abusive trading practices, and fraud.
Check Regulatory Violations
Someone with little experience may not necessarily be the individual you want to handle your account. Before you get your heart set on any broker, you should check and see if they have any regulatory violations. Every commodity broker should be registered with the National Futures Association (NFA) and have passed the Series-3 exam. A basic site search on the NFA website can show if your potential broker has had any regulatory violations in the past. This site also shows you any arbitration cases and whether the broker was a claimant or respondent.
Interview Your Broker
When you have decided on a commodities firm or commodity broker, you should meet with them and interview them. Ask how long they’ve been in business and if they’re licensed with any associations. This allows you to cross reference the research you’ve already done to ensure your broker is trustworthy. Before you visit your potential agent, you should be aware of all the forms you’ll need to open an account. Having all of your information and documentation allows your broker to open an account and begin trading smoothly.
Additionally, ask any questions on topics you don’t understand. Your broker should be more than happy to explain anything that makes you feel unsure or uneasy. Above all, be ready to keep track of your trades, so you have evidence if there’s a problem with your commodities broker.
