Which
Futures Broker is right for me?
Deciding to trade commodity futures can be a difficult decision in itself.
Finding a futures broker that suites your needs and one that has your best interest
at heart can be an even more daunting task. There are many qualities in a
futures broker and brokerage firm that you should look for. Hopefully this
article will help you decide what firm is right for you.
What type of futures broker should I use?
There are many commodity futures firms available for you to choose from. In
fact, there are probably dozens of new firms popping up every 6 months. You
will see that there are firms that offer strictly Full Service, firms that
offer Discount Service, firms that offer Online Futures Trading and firms
that offer all 3. So, which is right for you? Well, that depends on your
level of comfort with the markets. Just because you trade stocks does not
necessarily mean you don't need help with a futures account. You would
think they are the same and in some respects they are (order types used,
etc.) but in many ways they are different. A licensed Futures Broker can go
over the differences with you and we will touch on some of them here.
Full Service Futures Broker:
A full service broker is your 'eyes and ears' to the markets. They should
have at least 6 years experience in the industry. They can be an invaluable
asset in your futures trading business. Yes, I said business. Treat futures
trading as a business and seek out the best 'partners' and trading tools
to help put more of the odds of success in your favor. The Full Service broker
can offer you insight into the what's and whys of a markets movements, keep
you abreast of economic reports that can affect your positions, be a
sounding board for your ideas and provide you numerous trading tools that
you can add to your Traders ToolBox. The Full Service broker should be able
to offer you Quotes, Charting, Research, Market Reports, Opening Calls on
the markets and a free papertrading account. Papertrading is a mock account
that you can use to get your feet wet before risking any money.
These are essential items and should be part of your checklist when selecting a broker
to use. Full Service brokers do charge a higher rate than other brokers, but
they can also assist you in making more money in the markets by offering
their advice and the items I listed above. When comparing brokers, rates
should not be a deciding factor. You are paying for the knowledge of a
professional and should be willing to pay for it. It makes sense that the
broker that works for you wants you to be successful and will work very hard
for you. That, sometimes, is the difference between success and failure in
this business.
Discount Futures Brokerage Account:
Perhaps you have been trading for some time and working with a full service
brokerage but feel it is time to reduce costs and go it alone. Fine. That is
great! Before moving your account to another brokerage firm, why not just
keep your account where it is and call the broker and ask if they have a
Discount Brokerage account you can convert to. The futures firm you choose
should still offer all the free trading tools that the Full Service firm
does, but instead of getting the brokers ear, you will get lower commission
rates. You can open an account and place your trades over the phone, by
email or fax with your dedicated broker or the trade desk. As long as they
answer the phone in a timely manner, place your order immediately and are
courteous, you have found a good place to trade. It's time to refine your
skills as a trader and work hard in your business. Try not to ask to convert
to a discount account just to save a couple of bucks in commission, but
continue to use the Full Service Broker as if there hasn't been a change. Be
fair to your Full Service broker since they get paid to work with those that
pay for their service.
Online Futures Trading:
Online Futures trading is for veteran traders that need a direct connection
to the exchange with no delay. The futures firm you choose should have a
choice of trading platforms that include a browser based platform (that
allows you to trade from any location by logging onto the internet and going
to a trading URL) and a downloadable trading platform that offers quicker
speeds for order execution. The Firm should offer FREE live quotes on ALL
markets, Live Account updates, 24 hour trading, access to ALL exchanges,
FREE broker support and backup, Exchange minimum margins, T bills allowed
for Margin and ALL the trading tools that the Full Service Broker offers.
Online Trading is not necessarily for everyone. Just because you feel
comfortable placing your own orders does not necessarily mean you should
trade online. Brokers do offer a substantial amount of service to customers
that are not able to be plugged in all day. Even though the commission rates
are lower for you when trading online, it doesn't mean you will be more
successful. Sometimes you need to place orders and have someone watch the
trades for you so that they can place stop loss or limit orders for you when
your order gets filled. That is where a discount broker can be a very
valuable asset.
Just remember, when choosing a broker or brokerage firm for you to use, be
true to yourself and ask what is important for you? The firm with the
highest rates are not necessarily bad and the firms with the lowest rates
are not necessarily good. Do your due diligence and contact the National
Futures Assoc. (NFA) at http://www.nfa.futures.org to check on the Firms
and/or the Individual Brokers records.
Hopefully this has been helpful to you in providing guidance in selecting a
broker. Always remember that no matter how good a brokerage firm is and how
helpful a futures broker is, there is never a guarantee of success when
trading futures. Futures trading is very risky and you can lose all or more
of your money. Be very careful when trading and use the knowledge you gained
to select a broker that can assist you in avoiding the pitfalls that many
new traders fall into when they start in this business. Good Luck and Happy
Trading!
Derek Dobrowolski, President -
OFG, Inc.
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