What to Look For When Comparing Futures Brokers
Posted By:- Ilan Levy-Mayer Vice President, Cannon Trading Futures Blog
Great risks and great rewards are two of the main principles founded in trading. Since 1848, where resides the world’s oldest and largest functioning options exchange, individuals have made fortunes and lost companies, behind this fickle industry. In the futures market, these two linked together, can lead to greater success, but how? Firstly, let us look at the components of a futures market, and futures brokers. In short, the futures market can be compared to the stock market, but with a focus on the future rise or fall, particularly in commodity prices (the price of raw materials and primary products) such as:
To name a few…
The above aforementioned goods form what is considered to be the commodities market. Though Cocoa and wheat are considered soft commodities, and lumber oil and electricity are hard commodities, these both are secured by futures contracts, which entail physical assets. Futures broker diligently watches commodity markets, assesses two indicators, supply and demand. As a general rule, the determination of supply and demand, generally dictates the amount of money to allocate to a certain position in the commodities market. Once this position is held, the futures broker can predetermine the value of a commodity. Moreover, if the forecast was apt, you sell high and receive a larger profit, on the converse, a wrong forecast could lead to a loss of your initial risk capital. Losses in general, are hard to accept, however, without a great risk, yes the potential gain is greater, but we always have to calculate the loss.
When we talk about a loss in investment, inherently, it is a part of the mind, which is usually ignored. Accepting a loss, to survive in this industry requires fortitude and discipline. Why? The first instinct, when you lose money, is to double-down. Briefly, to double down depend mainly on if you see a future in the market that you are investing in, and if not, simply cut your losses. Consequently, with great uncertainty in the commodity markets, and a brief overview of this vast aspect of the financial sector, how can you choose a prudent, savvy, yet, sage futures broker?
Bang or Bust
There is a considerable amount of reasons why futures brokers exist in the industry; financial freedom needs a greater challenge in life, they thrive off organization and are risk-takers. Choosing a futures broker is like putting on a good suit. The fit has to be right, your sleeves, should match your arm-length, with your range of motion (initial investment) and your inseam, should bend and adjust to your movements (flexibility to sell); the same with your broker, his/her skill will tailor to your needs. Each skill that your broker possesses should be fitted to achieving your financial return. There are three options;
- full-service futures broker,
- Discount Future Accounts Brokerage,
- Online futures-trading.
Firstly, full service trading truly is like the Ritz-Carlton of investing. A full service agency becomes your eyes and ears to the existing markets. Most agencies employ brokers, with at least six years experience in the market. In addition, full service brokers, should view your new investment, as a new business. As the new business develops, open lines of communication, should be at the helm of this fledgling venture.
Great communication is a key factor in selecting a full-service broker, in that while they provide you charts, and insight into markets, they also are your audience, for new ways to diversify your business with them. This is vital for an inexperienced investor, because without insight or vision to see into these future markets, you run the risk of losing all, if not more of your initial investment. Full service trading brokers and firms charge a higher rate, but for that higher premium, you are paying for their knowledge, which could lead to your success.
Secondly, if you are experienced in the market, but want to steer your ship with more control, you can open a discount futures brokerage account. At first glance, this seems ideal; you can operate with a full-service brokerage firm, and make your own decisions, and end-up with a lower commission rate. Together, this sounds great, but one aspect that is indispensable, is that listening ear. Wisdom and experience, always trump trying to save a few commission dollars in this industry. One option, that shows loyalty, is inquire within your full-service broker, if they have a discount futures brokerage account.
Thirdly, online futures trading is primarily for veteran traders. This preference truly puts you in full control. As a veteran trader, you are now making changes without delay. When choosing this platform to operate with a futures firm, due your due diligence and see if they allow you to access a trading URL at all times, to continue working. Online future firms should allow you to have:
- Live updates
- FREE online quotes and charts
- ALL the trading tools a full service broker offers
- 24 hour trading
- FREE broker support and backup
Overall, when choosing a futures broker, you truly have to weigh your needs and the most important question, what do I want? Create a checklist, and compare to see what broker lines up the most. Take on a full understanding, that there will be lost and gains in your new investment. Consequently, remember, the ‘suit’ has to fit, the risk and return are great, but stay true to the initial investment, which is- you.
Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.