Choosing a Futures Broker

One of the key decisions you will make when you start trading futures is your choice of futures broker. The futures broker’s function is to enable you to access the markets by transmitting your orders to the futures exchange where they can be transacted.


Why You Need a Futures Broker

A futures broker (technically called a “futures commission merchant” or FCM) must therefore be a member of the exchange, and also hold a Series 3 license. The services that are offered differ from one firm to another, and the important thing is to find a broker whose trading conditions meet your own unique needs. If you don’t have recommendations from family of friends to go by, then choosing a futures broker can be daunting. The article below aims to help you to understand the key features that you should aim to assess in any firm that you are considering.

In order to start trading on the futures markets, you must open an account with a Series 3 qualified commodity broker representative. You may know of a friend who can recommend a futures brokerage to you, or a broker may even call you themselves.

Full Service Brokerage

Full Service Futures BrokerA full service brokerage offers more than simply access to the markets. A full service firm will provide you with a wealth of information to help you make trading decisions, from market news and analysis to strategies and advice.

If you’re just starting out in futures and aren’t confident then this can be a good platform from which to begin, as you’ll have the help and support of brokers with many years experience in the markets. Be aware, however, that a full service broker typically charges higher commissions and fees for the additional level of personalized attention and service that they provide.

Discount Brokerage

A discount broker is a good choice if you’re confident in your own trading strategies or already have experience in either futures or other markets. The fee charged covers a basic service – the ability to place trades through an execution platform – though most discount brokers also offer price data and charting, as well as educational resources. What you won’t get is any kind of advice that is specific to your own trading.

As the name suggests, the main advantage of discount brokerage is that the transaction fees that are charged are extremely competitive.

How to Select a Futures Broker

As the primary function of a futures broker is to carry your orders to the market efficiently, then ensuring that your broker provides the necessary means to do so should be of paramount importance. For many futures traders the speed of execution is critical. Although opening a demo account is a great way to experience the execution platform a brokerage firm offers, as all transactions are simulated they are not transmitted to the real market and give no indication of execution speeds. The only way to be certain is to open and fund an account, although reading broker reviews online to hear about the experiences of other traders with a firm can also be helpful.

As a general rule, as the frequency with which you intend to trade increases, then so should the importance of reducing commissions and other costs. If you plan to trade half a dozen times per day then finding a low cost broker might be your primary consideration, whereas if you only plan to execute one or two trades per month then other factors will be far more important.

Choosing a Futures Broker

Broker ReviewsThe specific distinctions above aside, choosing a futures broker is much like choosing a broker for trading stocks or forex, and you will need to compare futures brokers according to a range of criteria. Here are some of the things you will need to consider:

Minimum Opening Deposit
Margin Requirements and Call Procedure
Products Offered
Charting Platform and Data Fees
Commissions and Account Fees
Security of Funds

Visit our futures broker comparison pages to discover the best rated brokers and read detailed reviews.

View the next futures article: How to Roll a Futures Contract Over