How To Select A Commodities Broker
Selecting a commodity broker can make or break a trader. This selection should be considered well and with some serious investigation.
How to select a commodities broker depends on several factors such as your experience, whether you plan to trade online or by phone, and what kind of help you need in your trading. Do you need help in finding trades, or are you going to select your trades by yourself. Do you need research or trading entry advice, do you plan to place orders that are set at a price, or are you going to do all trading at market, except stop loss price points.
Selecting a commodities broker who is full service, or one that depends on the customer to make all the decisions, will determine the type of broker you should seek out. A full service broker for futures trading will cost more per trade than one in which you do the trading without any help. Online trading is cheaper than manual trading by phone. Using an Internet futures broker is best suited for computer trading, as they will supply the entry software for making the trades. Many will also offset the real time quote charges needed to do this type of Internet futures trading. The amount of the offset will depend on your trading volume and commission rate. One thing to remember is that all these prices are negotiable and are not set in stone.
The software needed to do charting and keeping track of trends is offered by some brokers as an incentive to trade through them. The Internet is an easy way to find out what is offered by the many commodity-trading firms. There are many firms to choose from and the plans they offer. This choice depends on your knowledge and trading experience. Do not be shy about letting a broker know if you are new to trading or have been doing it for years. Futures trading is difficult to do successfully by inexperienced traders. Newcomers would be well advised to use an experienced broker to guide the trading and keep the positions at a level consistent with the risk the trader can afford. Stock trading is entirely different from futures trading, as the leverage is significantly higher in commodity trading. A good broker is worth their knowledge to a newly minted trader. A broker with years of experience will try to keep their customers from making costly mistakes. These trades will be commissioned higher than those you make yourself without advice. The broker’s time must be compensated for, and his hard earned experience is invaluable to a new trader. Keeping losses at a manageable level will more than offset the higher commissions.
Some firms, while suitable for a new trader, would still be a bad choice if the brokers working for them were new and untested by the rigors of the market. Look for quality information and quality service. Timely service is always needed, and slow trading execution can cost money or even mean trades are not completed. A good brokerage firm will adjust prices, if the trader feels they have not been treated fairly. It is just a matter of asking for “time and sales” to see if your trade was handled properly. Poorly run firms are reluctant to make these adjustments and should be avoided when found out.
Commodity trading firms are in competition with each other for good customers and will treat them well in order to keep them happy. Fairness of doing the trade for all concerned should always be the deciding factor. Do not be surprised if you find that some exchanges are less reliable than others. In those cases, it does not matter which firm you put your trades through, and in fact, some traders will not trade certain commodities for this reason. If you wish to trade a specific commodity, it may be wise to find a trading firm that is a big player in that commodity. For example, you may find that a firm is big in the cattle market and not so well represented in the copper market. If cattle trading is your thing, you would be smart to go with a firm that is a player in that market. They will get better fills and better information than other firms in that market.
For some firms that trade a commodity that is traded in Chicago, you may be better off with a Chicago firm with a long association with that market. The same could be said for New York markets, as well.
Margin requirements are set by the exchanges and must be adhered to by the commodity broker. Some brokers will require higher margins from their customers as a safety factor for their firm. An experienced well-financed trader should not have to exceed the margins required by the trading exchange. These margins are published by the exchanges, so these requirements are public information.
A good working relationship with a broker is earned over time. The customer should meet margin requirements or account requirements promptly. A customer should do timely funds transfers. This is a constant source of customer problems for many brokers. Keeping a good reputation in this area with the brokerage firm will go a long way toward getting excellent service from the firm.
The same can be said for thanking a broker for doing the little extras that make a relationship a two-way street. Futures trading is never easy and an ongoing working relationship can be worth many dollars to a trader. This develops over time. A good broker is hard to find and worth the effort to keep once found. You are a client, but not the only client if the broker has a good reputation in the business.
There are certain services that a potential customer will find hard to get in life. A good auto mechanic, a good dentist, a caring doctor, and a good broker all take effort to dig out. Referrals work and good detective work on the net will also discover those that are well worth what you need to pay to be one of their customers. Being warned of a potential large loss before it happens is priceless and could mean the difference between wiping out an account and saving it. Controlling losses is another area that a broker can help with. Many future traders overtrade and lose money due to this one trading fault. An experienced broker can see this easily, as they have seen it before. If you were ever told to watch this area of your trading, you would be wise to look at it seriously.
Study what the firms that offer trading on the Internet have for their clients. This is the most popular way to trade futures on all the commodity markets. Good software, good executions, and a reliable source for information can be found on the Internet. Futures trading is a lifetime study, and a trader never knows everything there is to know. About the time that you feel you have seen everything that can happen to cause a losing trade, you will find a new one. This is where having an experienced broker can pay off big time. They will probably have seen more than you have, because of their exposure to the possibilities through their customers. Smart traders learn from many sources and do not have to have every experience themselves. It may be worthwhile to have more than one account, to get information from more than one person. Look very hard at firms that specialize in certain markets. They may have a far better insight into that specific market than a firm that is not big on that exchange.