Finding A Commodity Trading Broker For Your Needs
A commodity trading broker can meet the need of futures traders for efficient, reliable, and easy access to their preferred commodities market.
As a trader, you would expect the commodity trading broker to provide knowledge and expertise, being able to draw on experienced professional advisers in their brokerage firm. Much will, of course, depend on your background, level of experience in commodity futures trading and whether you want to trade yourself, called self-directed trading, or with some degree of support and guidance.
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Choose a broker appropriate to your level of experience and your trading and investment needs. Some deal mainly with high net worth individuals, while others focus on institutional clients.
Find out from their site if the service offered is suitable for your needs, knowledge , budget and risk profile. Service brokerages advise on investment strategy, will likely offer a research facility and a regular trading bulletin. Expect the fees to reflect this more comprehensive service.
Registration and Regulation To check the suitability of a commodity trading brokerage firm you can see if they are a member of the National Futures Association (NFA).
The NFA makes sure firms wanting to offer commodity trading services to the public are fit and proper.
The firm must also be registered with the Commodity Futures Trading Commission (CFTC), which requires brokers and advisers to meet strict rules in order to protect investors and traders. When it comes to trading futures on the various global commodities exchanges, you will either call your broker to fill the buy or sell order or, more likely today, use one of the online trading platforms most brokers now offer as part of their service.
Either way you need to have confidence that when you decide on a trade that it is carried out quickly and reliably, so that the price you bid or offer at is as close as possible to the current spot price.
In a fast moving market a slight delay can make a difference which could be significant.
If you prefer to hand over management of your capital to the broker they can use a professional adviser who will invest in Managed Futures Funds on your behalf.
As a resident of the US you can invest some of your capital into these professionally managed futures fund and take a more passive role in how your money is traded.
You will want to be sure that the manager of these funds is registered with the CFTC.
The benefits of investing in managed futures funds thorugh your commodity trading broker are:
Broker Market Analysis and Newsletter Services In addition to providing a trading platform for the trader, most brokers will also provide additional added value services such as a daily newsletter service which may provide technical and fundamental analysis. Many firms will also provide a daily e-mail service giving time sensitive information on support and resistance levels for various commodity futures marketsfor which they provide you with a platform.
You may also find a number of the larger brokerages offering a range of commodity trading courses to help new traders understand the basic principles and techniques of trading.
They will also add more advanced courses for more established traders. Money management When you decide to use the services of a commodity trading broker you will need to find out what terms they set out for providing you with an account. Of particular importance will be the minimum amount of capital you are expected to put up as collateral in your account. You are most likely to be trading on margin (between 2-5%) and this is where you have to fully understand the double edged sword nature of commodity trading. If a trade goes your way, then your profits will be increased from the leverage you apply. If, however, the market goes against you, and you have not placed a stop loss, then your losses could be significant. When you make a loss the broker will make a margin call, asking you to replenish your account.
With the increased global reach and accessibility of commodity markets to a growing numbers of retail traders, the use of electronic trading platforms across all time zones will inevitably increase. To meet this growing demand, commodity trading brokers are now marketing their services to a wider universe of customers and product innovation has become essential to stay ahead in this competitive field. Regulation of brokers and advisers will have to keep up with the development of new software and platforms, and this is a real challenge for the CFTC in the US and the FSA in the UK, as well as for regulators in other jurisdictions.
As commodities are being seen more and more as an long term asset class, the role and place of the traditional commodity trading broker will continue to evolve going forward.
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