What Does A Commodity Futures Broker Do?

Dec 18, 15 What Does A Commodity Futures Broker Do?

Futures, also referred to as commodities, are traded on the stock market. They are traded as agreements that the buyer will purchase the commodity some time in the near future for the current price. This agreement is made because the buyer is predicting that the price will be higher in the future. Their pre-agreed purchase price will be well below the market price at that time, and if they decide to sell on that date, they will make a profit. The job of the Commodity Futures Broker is to help facilitate and execute the buy and sell orders that are placed by their clients.

What Are Futures?

Futures trading is not the same thing as options trading. As implied, options are considered instruments that give clients the option to buy at a price that has been determined beforehand. On the other hand, futures are obligations and the buyer must fulfill the obligation they agreed on. His broker can always liquidate his position before the future date if the client wants to.

However, this can only be accomplished if the position is sold to someone else. If the client chooses to fulfill the obligation, the trade will be finalized by the broker.

What Is A Discount Futures Broker?

This type of broker will execute all orders from their clients. A Discount Futures Broker rarely offers any other types of services, and if he or she does, they will charge an additional fee. Clients who decide to use a Discount Futures Broker will rarely have access to current market research or any personalized advice for the client. The main objective of using this type of broker is to buy and sell what client’s request.

Online Brokers

With the advancements in technology, clients now have the ability to trade online with an options and futures broker or through an online brokerage firm. Although the fees are lower, the may be a limit on the amount of support services clients’ receive. For those who are new to futures trading and wish to trade online should thoroughly take the time to become educated. It is important to understand what futures are and how the market works.

Full-Service Brokerage Firm

A full-service brokerage firm offers a variety of service. The service is personalized, and clients receive vital market information that may affect the client’s trading position. The client will be updated on the current market situation, market research, account balances, and recommendations.

The commodity broker should only suggest a trade to a client when he or she is at least 90% sure that the trade will end in their client’s best interests. It is also important that the broker is technically oriented. The broker’s methods should also have been tested in both the bearish and bullish markets.

A Futures Broker typically has a degree in business, economics or finance. The broker should also have strong communication skills, research skills, sales aptitude and the ability to work in an environment that is fast-paced and stressful. They must also be certified and registered with the National Futures Association.

What Items Are Traded?

If you are new to futures trading, you may not be familiar with the types of items that are commonly traded. Some items that your broker may suggest are:

  • Soybeans
  • Coffee
  • Gold
  • Silver
  • Oat
  • Wheat
  • Cotton
  • Cattle
  • Pork
  • Lumber
  • Orange juice
  • Sugar
  • Currency
  • Energy

US Treasury Bonds are also frequently traded by clients.

There are many advantages to using an experienced Futures Commodity Broker for your trades. Be sure to research the brokers and brokerage firms thoroughly, and ask for referrals. Also, check online reviews to find experienced and reputable full-service online brokerage firms that can assist you.

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