Commodity traders (clients) and commodity brokers are in constant communication with each other. If you are looking to trade commodities, you need a commodity broker to route your orders to the exchanges and you need to have a commodity brokerage account in order for your trades to clear, P&L and be marked to the market.
Over the years stock and commodity brokers saw a change in perspective. As technology progressed and enabled direct access for traders electronically, the role of commodity brokers evolved into more of a service provider, ally than one that tries to convince the client to make trades.
The expectations from commodity brokers will vary depending on the type of trading/ service the client is looking for. In general I would say there are three main type of commodity clients/ traders:
- Online, self directed commodity trader. This type of trader will have an online access to the markets to place trades directly from his computer or cell phone. He/ She does need a back up support in case they lose connection.
- Full service or broker assist client who uses the his broker both to place orders via the phone and to get feedback, advice and be a second pair of eyes.
- Managed account or a trading system follower.
One size does not fit all…
Each of these traders could have varying expectations of their commodity brokers.
They all start with a certain set of expectations and hopefully as time progresses and their experience increases, their expectations will evolve to fit the reality of trading commodities and what they actually need and should expect from their commodity broker.
The online, self directed trader may only expect and research commission prices before he/she starts trading. They believe that the commodity broker should NOT contact them unsolicited and that they will probably not need much from their broker. For some online traders, they care less if they speak to the same broker each time or if they get transferred to a different customer service each time.
The full service client will have varying expectations, depending if he / she traded before or not. If new to the commodity markets, their initial expectations will be for a knowledgeable broker who will consistently provide winning recommendations….However, if the trader traded futures and commodities before, they will expect honesty, reliability, source of knowledge and education.
The commodity trader who is following a trading system or is using a managed account where someone else is making the decision can fall into either category as described above….
In scenario one, the commodity trader will need much more support than he/ she initially thought they would…Yes, the online platform will provide all the tools needed but trading can be a lonely activity and trading futures with the highly leveraged financial instruments can make this even riskier. Added value tools if provided by the broker can be very helpful. This can range from update on holiday trading hours, margin changes, support and resistance levels and more. Even more so, each trader is different and even if you are trading online, there are quite a bit advantages for working with a broker who knows you, your style of trading, needs and more….
Moving to the full service trader, he or she will quickly learn that their commodity broker does NOT have a crystal ball. Hopefully, if they are working with a good commodity broker, they will learn to appreciate honesty, ability to assist with risk control, information provided and really be a second pair of eyes to watch over you and your positions and provide timely, honest assistance.
Lastly, the managed account or trading system participant will usually have the notion that as soon as he joins a trading system or program, it should perform positively right away…What a good futures broker can do for this type of client is provide with a good, balanced review of what one should expect, what the client consider “normal” drawdown and when should one re-evaluate the system or managed account. If client has good relationship with a broker who is familiar with trading, trading systems and managed accounts, then both client and broker should review back testing, past performance, system behavior, maximum draw down’s and more statistical information that will assist the client while evaluating and while trading the product of their choice.
Overall the dream and reality of what to expect is quite different. Trading and investing in general is risky. Commodity and futures trading can be even riskier because of the inherent leverage applied.There are great and bad commodity brokers just like any other industry.
Before choosing a broker use the NFA basic tool available at: http://www.nfa.futures.org/basicnet/ here you can see how long the company, the broker been in the industry. How many regulatory complaints and actions took place and more.
Trust your gut, keep your feet on the ground, and you just may end up- happily ever after.
Disclaimer – 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.
About Cannon Trading: Cannon Trading, founded in 1988, as in online trading website that lists a lot of recent information on different aspects of trading. Moreover, it also features trading software, tools and brokerage services. You can even open an account with them online as well as avail memberships.