How to Become a Commodity Broker

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You will be in a much more specialized field being a commodity broker than being a stockbroker or registered securities representative. There are currently more than 663,000 registered securities representatives. As for registered commodity brokers, there are about 53,000. Most everyone today knows how to buy stocks and mutual funds online, but most people do not have a clue on how to trade commodities.

I believe there will always be a need for the role of the commodity broker.

As with most other professions, you probably want to know the answers for two questions:

  1. How much money can you make?
  2. Will you enjoy working in the futures industry?

There is no doubt you can make a good living as a commodity broker, but you have to be good at it just like everything else. You will most likely enjoy working as a commodity broker if you have a strong interest in trading commodities and you are a somewhat decent salesperson. Yes, sales are involved since you have to open accounts and build a book of business.

Process for Becoming a Licensed Commodity Broker

This profession requires every commodity broker to be licensed and registered with the National Futures Association (NFA). The designation you will be seeking is an Associated Person.

You will be required to take and pass the Series 3 examination. Do not confuse this with the Series 7, which is used for Stock Brokers.

The exam will have two parts. The first consists of questions that will test you on general futures market knowledge, hedging, futures contracts, orders, options and most everything involved in trading. The outline from for the test can be found at the NFA.

The second part of the test will cover rules and regulations.

Do not take this part of the test lightly. It deals with the “treating the customer properly” issues. Your brokerage firm should have study manuals for you and there are several online study courses available.

Next, you will need to fill out an 8-R form with the NFA. This basically gives them your life history. It includes your employment history for the last 10 years and your residential history for the last 5 years. It also covers your criminal history and well as any disciplinary actions if you have been licensed in other financial professions.

The reason for the in-depth profile is that you will go through a background check with the FBI before you are given a temporary license. You will also need to get fingerprinted, usually at your local police office, and the card will be sent to the NFA along with your 8-R.

Where to Work as a Commodity Broker

Now, before you start this whole process, you need to have a place to work. Most stock brokerage firms do not trade commodities, so you should look for a firm that specializes in commodities. These are typically called Introducing Brokers or just IBs.

You can also work directly for an FCM, however, most of them are located in Chicago or New York.

As far as the number of firms, there are about 1,500 Introducing Brokers and about 150 FCMs.

Being a commodity broker is a combination of being a salesperson with an analytical ability to research commodity markets as well as trade commodities. Many commodity brokerage firms have research departments that do a lot of the analysis for you and make trade recommendations.

Chicago is definitely the place to be for trading commodities. It is home to the CME Group - a merger between the CBOT and CME. It may be the best place to learn and get a start. Most other major cities will have a handful of commodity brokerage firms. You probably will have to look at a firm that specializes in commodities as the large wirehouses like Merrill and Morgan Stanley most likely will not hire you exclusively for trading commodities.

This can be a very rewarding profession and many who last more than a couple years are hooked and stay in the industry for a lifetime.

Good luck and study hard for the test!

Updated by Andrew Hecht on May 4, 2016

The commodities market is a highly cyclical business. During bull markets there tend to be lots of interest from the ever expanding investor community. During these times, there are many jobs available for new brokers breaking into the business. However, during bear markets, the business tends to contract as volumes and interest dry up.

From 2003-2011/2012, there was an active bull market in commodities and prices moved progressively higher, attracting a great deal of investor interest as commodities moved from alternative investment vehicles into the mainstream. However, from 2012-early 2016, bear market conditions caused interest in the sector to decline, and opportunities for brokers decreased alongside prices. There have been signs that the commodities markets have started to pick up again in the spring of 2016. As prices have bounced off lows, the commodity brokerage has started to look better as it is a function of volume and price action.

Another area to consider, if you want to enter the fast moving and exciting world of commodities, is in the traditional equity markets. The advent of ETF and ETN products has made commodity exposure available to investors, traders, and speculators in their traditional stock accounts. This type of brokerage requires the traditional SEC license, the Series 7 as opposed to the Series 3 requirement.