Choosing Your Futures Broker: Five Straightforward Measurements

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Choosing Your Futures Broker: Five Straightforward Measurements

Whether you’re planning to open a self-directed futures account, or one where a broker supports the trading of your account – in some large or small way – there are several important factors you should consider when you decide to open an account and start trading. Everything a brokerage firm offers – or doesn’t offer – comes at price. Typically that price is boiled down and quoted in terms of what’s charged when you make a trade – commissions and exchange fees – and maybe a short list of other costs. But choosing a futures broker by simply comparing the “bottom line” of commissions can be hazardous to your trading.

Benjamin Graham, an influential economist and professional investor, is credited with saying, “Price is what you pay; value is what you get.” Because the dollars and cents a brokerage firm charges typically provides for a wider range of services – beyond just trade execution – it’s important you know what those services include, and if they’re important to you or not.

Whether you decide to utilize a discount futures broker or perhaps a full service commodity trading broker, the content below should help you create a guide and understanding to choosing the right futures trading broker for your trading needs and style.

Availability / Access

We list this consideration first because you might actually be surprised at the range of outcomes there are when you pick up the phone to call a brokerage firm. Who will answer the phone on the other end, a licensed broker, a clerk, a receptionist, a recorded message you need to listen to because their options have recently changed? How accessible a brokerage firm is can be a meaningful quality to you.

There are other possible reasons to call you brokerage firm, as well. You may want to talk to a licensed broker to discuss a particular trade idea, strategy or approach to trading? You may want to place a trade when you’re away from your platform – during overnight hours.

When considering availability and access, it’s also important to remember this: no matter how you intend to trade, there will be times when a situation will arise and you’ll need help from your brokerage firm. It could be when your computer suddenly fails in the middle of a trade, or the market you’re trading makes a large, unexpected move – possibly a limit move, or a server at the exchange blows a fuse and trading halts. If history is any indicator, these or any number of unforeseen situations are bound to occur.

How quickly and how readily helpful the brokerage firm is in theses circumstances can be a valuable aspect in determining your choice for a brokerage firm.

Trading Platform

From the experienced, platform-savvy, on-line trader, to the least tech-savvy who prefers to call a broker in order to place orders and for those falling somewhere in between these two extremes, there is a piece of software available for you to enhance you trading experience. Trading platforms come in a wide variety of appearances with a wide variety of features. Some include built-in charts. Some can be integrated with separate charting software. A few platforms can integrate with each other to combine the features of both. Still others offer features such as a mobile app., Mac-compatibility, browser-based functionality, automated risk limits and a whole other host of unique capabilities.

What platform will be suitable to your trading? Does the brokerage firm fully support it, or does a third party (the actual platform developer) support it? What features do you need in order to conduct your trading? Can you change platforms?

If you’re not sure about what features you need – or want – talk to brokerage firms’ representatives and discuss their platform offerings. Try a demo or two . . . or three. Find one you’re comfortable using.

Education and Research

Sudden moves in the markets are often caused by sudden events. These include government and private economic reports and forecasts, speeches by important people, crop estimates, energy inventory reports, weather forecasts and the list goes on. Whether you seek to avoid these events in your trading or face them head on with open positions, knowing when they are scheduled for release is important. This is just one category of research you should make available to you as a trader. Technical research – and the variety of tools within this category – is another. Find out what research your potential brokerage firm offers – or doesn’t offer – and incorporate it into your brokerage choice.

Margins / Leverage

All brokerage firms set the overnight margin requirements for the futures markets at the same levels. That is to say, they’re set according to the determination of the exchange where those futures markets are listed. Thus, anyone holding trades overnight – regardless of the brokerage firm at which they choose to trade – will be required to post the same margins for the same futures markets.

Day trading margins are a different story. Brokerage firms can reduce the margin requirement for the futures markets – often set as a percentage of the overnight margin or a flat rate ($500 for the E-mini S&P 500, for example) – which increases the potential leverage accounts can incur. Typically, the ability of brokerage firms to offer low day trading margins is a function of their ability to monitor and manage the risks that accounts will incur when day trading. Of course, leverage can work for you as well as against you. It magnifies gains as well as losses, so, the lower the day trading margin the riskier the trade.

Stature, Regard, Standing

How long has a brokerage firm been in business? How long have its brokers worked there? How does a brokerage firm and its brokers treat customers? How helpful and knowledgeable are the brokers, assistants, support staff? What, if any, disciplinary actions have been taken against the firm, or any of its registered brokers? In short, what is the firm’s reputation? This is arguably as important as any of the other considerations, because it goes to the heart of a brokerage firm’s success and maybe, indirectly, yours. The futures brokerage industry is as competitive as ever. Those standing and growing today – older firms as well as the newer ones – need to earn consistently high marks for service and integrity in order to continue standing and growing.

Certainly it’s prudent to shop around in order to find a brokerage firm you’ll choose to open your account. These five measurements, we believe, are worth using to help you find the one right for you.


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