Selecting a Commodity Broker


Visitors: 164

One of the most important decisions that an investor will make does not include purchasing an option or future; this decision is choosing a commodity broker. Understanding the dynamics involved in choosing a commodity broker is as much about understanding yourself as it is getting to know the commodity broker. Since commodity trading can be more involved than trading stocks, it is more important to select the right commodity broker than it is to select the right stock broker.

About Commodity Futures and Commodity Brokers

By definition, a commodity market is the location where sellers and buyers are about to conduct business in futures trading. A commodities trading contract is a legally binding agreement that defines an asset, the quantity of that asset to be delivered and the month when it will be delivered. A margin is invested to purchase the contract and the full balance of the contract is only required if the buyer takes delivery. If a commodity contract is purchased, the correct term is to “take delivery” and if a futures contract is sold, it is referred to as “making delivery. ”

Commodity future contracts can be written for any type of commodity such as gold, lumber, livestock, currency, and many others. There are several different futures markets that handle specific types of commodities, such as the CME (Chicago Mercantile Exchange), NYBOT (New York Board of Trade), CBOT (Chicago Board of Trade) and others.

Futures exchanges are regulated by strict guidelines, both imposed by the government and internally, and they are require that trading is done “in the pit”, which means that transactions are handled by commodity brokers that are licensed and have paid to be in that position. These commodity brokers serve as the connection between buyers and sellers. Such an important link requires that you select someone that is not only an excellent commodity broker but someone that can identify your investment shortcomings and help to overcome those flaws.

Two Types of Commodity Brokers

There are two types, or levels, of commodity brokers and the level of service they provide is based on the needs of the investor: full service and discount. Each type of commodity broker has advantages and disadvantages that should be considered when making a decision.

Full Service Brokers

This type of commodity broker is usually recommended for new or inexperienced investors, or for those investors who invest in numerous markets. Full service commodity brokers usually provide more information, advice and help to their clients; they often work with investors to create personalized investment strategies. The fees charged by these commodity brokers are generally higher because of the extra level of service they provide. Full service brokers that specialize in trading commodities are also known as Introducing Brokers.

Discount Brokers

This type of commodity broker typically works better for more successful traders. Discount brokers can charge less for the services that they provide since they provide a smaller range of services.

How Do You Find the Right Commodity Broker?

Finding the best commodity broker for you is more a product of knowing your tendencies than anything else. Remember that your ultimate investment philosophy is to make money and your commodity broker’s job is to help you do that. Some of the traits that you should seek in your commodity broker are:


Chances are if your commodity broker doesn’t have much experience, the results you receive will be spotty at best. You don’t want your commodity broker to learn how to invest at your expense. Not only is experience in general important, but experience in the commodities where you want to trade.


While a commodity broker may tell you about world-class support, what you get after you sign on is what’s important. If you are considering a particular commodity broker, call and ask for an explanation of the difference between bull call spread and a bear put spread; the level of response you get may be a good indication of the support you will receive after you open your commodity account.

Trial Period

Many commodity brokers will give you a free trial to “test drive” their service. Take advantage of this offer and see what happens. Remember that part of sampling something is trying to find out if it is good, no just trying to find out if it’s bad.


Choosing your commodity broker is one of the most important decisions you will make during your investing career. Successful trading can be the result or the victim of a commodity broker decision. Find a reputable broker that meets your needs and compensates for your shortcomings and you are on the road to investment success. A site dedicated to stock market investing using Japanese Candlesticks


Article Source:

Rate this Article: 
Selecting the Best Day Trading Broker
Rated 4 / 5
based on 5 votes

Related Articles:

Little Known Commodity Futures Broker Orders

by: Richard Stooker (August 17, 2010) 
(Investing/Futures and Commodities)

Forex Broker Reviews - What Are the Most Important Factors to Examine When ..

by: William Alheim Jr (September 27, 2008) 
(Finance/Currency Trading)

Other Lesser Known Commodity Futures Broker Orders

by: Richard Stooker (August 20, 2010) 
(Investing/Futures and Commodities)

What Kind of Commodity Broker Is Worth Full Service Commissions? Part 2

by: Thomas Cathey (February 24, 2007) 

What Kind of Commodity Broker Is Worth Full Service Commissions? Part 1

by: Thomas Cathey (February 24, 2007) 

Things To Consider Before Selecting An Online Broker

by: Joseph Kenny (December 01, 2006) 

Criteria For Selecting a Stock Broker

by: Vijay Kumar Sharma (July 16, 2008) 

Selecting The Right Commercial Mortgage Broker

by: Patrick Bedall (June 25, 2007) 
(Finance/Mortgage Refinance)

Tips For Selecting Your Forex Broker

by: Carrie Westengate (April 06, 2012) 

Selecting the Best Day Trading Broker

by: Miodrag Trajkovic (June 25, 2008) 
(Investing/Day Trading)