Tips on Searching for a Commodity Broker
Once you decide that you would like to participate in the commodity futures market, you will have to locate a commodity futures broker to trade. You will not find a commodity brokerage office on every corner, so you have to do some homework.
There are roughly 1,500 commodity brokerage firms in the U.S. There is a high concentration of commodity brokers in the Chicago area. There are also many commodity brokers in the New York, California and Florida areas. The vast majority of stockbrokers are not licensed to deal in commodities, so it is likely you will have to find a broker that specializes in commodities futures and options.
Local Commodity Brokers
The first place to start is on the Internet to locate a local broker, but that is not necessary since communication over long distance is easy these days. Some commodity traders desire the personal attention of having a local commodity broker, but finding the broker that suits your needs is a personal affair.
Most traders use only the phone or the Internet to conduct their commodity trading business and never meet their broker in person. The is especially true for those seeking online discount commodity brokers. It is always an advantage to meet a commodity broker before you open an account, as there are always a few rotten apples in every industry. Meeting someone face to face is always the best way to evaluate a potential business contact. Be sure to avoid high-pressure commodity brokers.
Online Commodity Broker Directories
There are online directories where you can find hundreds of listings of commodity brokers. CommodityBrokersOnline.com may be the best place when you are searching for a commodity broker. The site lists more than 700 commodity brokers with addresses, phone numbers, websites, complaint histories, years in the business and some background information.
Commodity Broker Advertisements
You can find advertisements for commodity brokers in trading magazines. The most common commodity and futures publications are Futures Magazine, Stocks and Commodities Magazine, and Stocks, Futures and Options Magazine (SFO). Most brokers will offer to send you free information on markets, to arrange an opportunity to speak with you and get your contact information. The Internet has become the most popular place for many commodity brokers to advertise. You can find advertisements on most futures trading sites – Futuresource.com, FuturesBuzz.com, and INO.com.
Parting Thoughts on a Commodity Broker Search
Search your local area first and then try to contact several others around the country. If you are looking for a full-service broker to help with managing the account, it is imperative that you find a broker who can trade well. Unfortunately, excellent traders are rare commodities. If you are looking to trade commodity futures online, then you will probably want to focus on low brokerage commissions and the efficiency of a trading platform.
You may see ads from the same commodity brokers all over the place. Don’t confuse that with quality. There may be a reason why they need to advertise so much. These brokers could have a significant turnover of clients because they lose money. However, some commodity brokers have large offices and need to feed a lot of brokers with leads.
Before You Decide, Check for Regulatory Violations
Commodity brokers must be licensed through the National Futures Association and pass the Series-3 exam. It is a good idea to look at any individual broker or firm you may be considering on the NFA website to make sure that they are registered and that they have a clean record. You can do a basic search on any NFA member to check on any regulatory actions or arbitration cases and whether the broker was a claimant or respondent.
Make sure that the broker supplies you with all of the necessary forms and documentation to open an account and that they explain anything you do not understand. Keep a record of all of your trades and if there is ever a problem with the broker you can always report it to the company they work for or to the NFA or CFTC directly.
Commodities futures and options markets are volatile, and there is lots of leverage and risk when trading in these markets. Therefore, it is important that you do your homework and understand those risks and all of the rules and regulations. Another way to participate in the commodities markets without using the futures markets is to trade or invest in the many ETF and ETN products available today that replicate commodity prices and are available via a regular equity trading or investment account.