Compensation for commodity brokers is generally on a commission basis; this means they receive a percentage of the gross commissions from the trades placed by their customers. Commissions are the fees associated with the execution of buying and selling orders. While some commodity brokers are highly successful, and many brokers fail in the first six months, it is misleading to look at industry averages to come up with an accurate estimate of what a typical commodity broker earns.
Commission rates have decreased dramatically since the late 1990s with the advent of online trading, and that has had an impact on the earnings for commodity brokers. However, there are still many commodity brokers who make an excellent living, and many people desire to pursue a career in this field.
Many new brokers starting in the business struggle to earn enough to pay their living expenses. Starting out means building a book of business, and this can take time. While some can survive the initial economic pain of low earnings while starting out, others become frustrated and leave the business. Building a business first requires an education in the commodities futures business, and then a sales effort to attract customers.
Brokers who have got over the hump of starting a business and have built a reasonable book of business can make a better than average living. Even if these brokers lack excellent sales skills or are mediocre traders, they often can survive in the business. These types of brokers tend to earn between $30,000 and $70,000 each year.
The top tier of commodity brokers often has one of two skills. They are either fantastic salespersons or excellent traders. A commodity broker who is a top salesperson or marketer attracts new business, even if they are not necessarily a great trader. There is a small percentage of commodity brokers who possess both skills. These brokers also tend to attract larger accounts, which translates to a high flow of trades and commissions. These professionals who are the top tier of brokers can earn a six or seven-figure income each year. The cream of the crop when it comes to the commodities futures brokerage business tend to have clients like hedge funds who transact large volumes of futures business on a daily basis.
Changes in the Business
The business of commodity brokerage has changed dramatically with the advent of electronic trading. Today, electronic platforms do the job formerly done by commodity brokers with a higher degree of speed and efficiency and at a much lower price. Many commodity futures brokers have become electronic traders. Others have moved into other fields within the commodity futures business. Some have become CTAs, CPOs, IBs or money managers. Others have concentrated on clearing or other services for larger traders or fund managers. The days of the old pit trading commodity brokers have come to an end. However, those brokers with strong market skills are still in demand as they can provide valuable advice and analysis for clients who compensate them by transacting through the broker.
Keys to Success
However, it is still possible to make money in the commodity business as a broker, in some cases by raising money for fund managers. There is still a thriving business for physical brokers who arrange transactions between producers and consumers around the world. These businesspeople tend to be experts in a particular commodity and use their vast network of contacts and knowledge to profit from arranging physical transactions around the world. The commodity business has transitioned over the past years, but there are always opportunities for knowledgeable professionals who understand the markets and have contacts. Those starting out in the business would do well to apprentice under a seasoned mentor who is a commodity broker or professional involved in some aspect of the business. Like in any discipline, hard work and competency usually result in rewards for those who persevere.
If you wish to become a successful commodity broker, there are many online study courses for the Series 3 exam that will familiarize you with the ins and outs of the business. However, the best way to learn this exciting and fast-paced business is to apprentice under an experienced professional who already has years of experience. Commodity brokerage can be a lucrative business, but the rewards tend to flow to the most knowledgeable and competent brokers with a track record of success. A successful and well-compensated commodity broker often gets new customers by recommendations from current contracts who profit from their experience.