How to choose a good commodity broker

[jeremiahmurray]

In the fast paced business of commodities trading, whether you're a new or an expert, it can be difficult to select the good brokerage firms. Let's share a thought for some collected ideas about choosing a commodity broker.

When considering a broker you should first consider the brokerage itself. Does the brokerage have a good reputation? Have there been problems with other clients that have not been resolved?

Secondly your broker should show proficiency for his craft. Some brokers specialize in one market and others have more general knowledge. Some can relate better to daytraders and others to position traders. Some love to do spreads; others are whizzes at option trades. What does your broker specialize in? There are many types of commodity futures brokers and choosing the right one can be an important factor in your success in trading futures. In choosing a commodity futures broker, several factors should be considered:

* Clearing arrangement
* Ethical business record
* Length of time in business
* Commissions
* Type of service

Talking to more than one broker at each firm helps you choose a broker you are comfortable with on a personal level, which is also important. An experienced broker, also known as a Futures Commission Merchant (FCM), like a market advisor or accountant, can be a very valuable asset to the farm manager. The NFA (nfa.futures.org) acts as the Better Business Bureau for brokerage firms trading in US markets and you can contact them to find out if there are any black marks on the record of the broker or brokerage you are considering using. It must be cautioned however, that a firm's NFA record may not necessarily reveal the integrity or lack thereof of a firm or an individual.

Asking questions of your potential broker at this point should help you weed out the brokers from the "salesman". Here are some questions to ask when Interviewing a futures broker:

1/Does the broker have a working knowledge of the fundamentals and technicals of the commodities you wish to trade?
This is an important question if you are looking for a broker to provide price outlook and advice. You don't want to be limited in the trading opportunities you can pursue due to the broker's lack of knowledge. Consider whether or not the broker is willing, to better service your account, to bring his/her level of knowledge of selected contracts up to a standard with which you feel comfortable.

2/What is the minimum size account they are willing to accept?
You should have received this information in the packet sent to you prior to your meeting. If it was not included, you need to know this up front, in case the broker or firm requires a higher initial amount to start than you are willing to put into a trading account. During this discussion you should also talk about the firm's margin requirements and call procedures. Firm can have different policies regarding margin.

3/What services does the broker offer and what are the commission fees?
Ask the broker about commission charges. As with most businesses commissions vary with the amount of service. Also, make sure you understand all additional fees for value-added services.

4/What is his/her track record like?
Find out if the broker has been in business for a long time. Is the broker willing to keep abreast of new trading techniques and strategies? Is the broker responsive to clients' trading ideas? If the broker handles many clients, is there time for personal attention? Are most of the broker's client's commercial hedgers, speculators or a mix of both? Most of these questions will be answered if you check his/her references.

5/How are issues handled?
Find out the brokerage firm's policies and procedures regarding trading issues. Who should you contact regarding questions about your account statement or disputed orders?

Lastly you have to have a good rapport with your broker. You have to like them. You have to feel that they have our best interest at heart. Don't lie to your broker. You should feel that you can ask them any question you want without feeling "dumb". If the only trading education you've had is Ken Robert's or Larry Williams, don't try to hide it from your broker, chances are he can see you coming anyway.


Collected and compiled by Jeremiah Murray
www commoditycalendar.com - 2009 Commodity Trader Wall Calendars for investors and traders