What is a Commodity Broker and Types of Commodity Brokers
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
“If you buy at the right time, you can make a mountain of money in commodities,” says financial magazine Forbes. ( and here at Cannon we would also like to remind you of the same possible large risk when you buy or sell at the wrong time….) Commodities don’t usually move at the same pace as the stock market, continues Forbes, so they can diversify your investment portfolio and lower the risk factor.
You need a commodity futures & options broker to facilitate your commodities trading. Commodities brokers buy or sell commodity contracts for a commission, and commission rates are usually paid per contract. A completed buy-and-sell transaction in the commodities market is called a round-turn.
Commodities futures brokers’ clients can be hedgers (people who use derivatives contracts to manage risk) or speculators (those who take a risk in hopes of greater profit). If you handle your own account, you are known as a self directed trader.
Your commodity futures broker will provide you with trading software, training, and ongoing education about trading futures as well as different strategies you can use. A savvy broker firm offers current market reports and economic calendars to help with your trading decision-making.
Types of Commodity Brokers
In the U.S. there are Intermediary Brokers known as FCM’s (Futures Commission Merchants) and IB’s (Introducing Brokers).
These intermediaries are registered with the CFTC (U.S. Commodity Futures Trading Commission) in addition to being members of the NFA (National Futures Association)
An Individual Account Executive must be registered with the NFA after passing the series 3 examinations.
Account executives can work with FCM’s , IB’s, CTA’s, CPO’s.
A commodities futures trading company includes one or more of these types of brokers:
- AP (Associated Person) – Also known as the RCR (Registered Commodity Representative), this broker is licensed to work as a commodity broker for a CPO, CTA, FCM, or IB.
- CPO (Commodity Pool Operator) – A CTA that manages a commodity pool, similar to mutual fund.
- CTA (Commodity Trading Advisor) – A person or entity that will manage your account according to a specific program they created with the objective of producing profits. CTA’s usually charge management fees and performance fees for managed futures accounts.
- FCM (Futures Commission Merchant) – An FCM is a company that clears orders to buy or sell futures contracts, options on futures contracts, or retail foreign exchange contracts.
- Floor Trader – This broker trades commodity contracts on the floor of a commodities exchange using open outcry. This involves shouting and the use of hand signals to buy or sell commodities. Floor trading is often as dramatic as it appears in movies! As of 2017 there are very few open out cry pits left as most exchanges are now fully electronic
- IB (Introducing Broker) – This is the person who represents you to an FCM (Futures Commission Merchant). The FCM performs the trade execution and “back office work.” The IB provides the service and advise if needed.
CannonTrading.com: Experience + Knowledge = Trust
Trust is earned when actions meet words.
One concern investors often have is if their commodity broker is trustworthy and diligent. If you’re new to online commodities trading, it’s important to work with a company that has proven, long-term reliability and success.
Cannon Trading has been in the futures trading business almost 30 years and is the recipient of several customer service awards including the 2016 Star Award as the leader in brokerage services with a flagship website that offers an information-filled blog. Since 1988, we’ve maintained good standing and a trustworthy reputation with the CFTC and NFA. All of your online transactions are safe and secure with High-grade Encryption (AES-256, 256-bit keys). We never sell your information to third parties.
We’re not only a safe and dependable commodities trading brokerage firm, we’re also a company that forms lifelong relationships with its clients. We want you to be the best trader you can be starting today. Call 310.859.9572, 800.454.9572, or contact your commodity broker at Cannon Trading.