Commodity brokers act as agents for buying and selling commodity futures and options, working for individuals, companies or themselves. There are two types of brokers: discount and full-service. Brokers must be available to take orders and communicate completed orders to customers. They must also monitor and maintain financial information. To work on the floor of stock exchanges, a commodity broker must own a share in the exchange. Brokers must pass the National Commodity Futures Examination and register with the National Futures Association.
Commodity brokers typically function as agents responsible for executing purchases and sales of commodity futures and options. They often do business for individuals, companies or even their own accounts. These brokers are usually employed by brokerage houses, work on the floor of exchanges or act as freelancers. When acting as an intermediary on behalf of a third party, brokers usually receive a fee or commission. There are basically two types of brokers: discount brokers and full service brokers.
Discount brokers have primary responsibility for fulfilling orders based on specific instructions received from their clients. On the other hand, full-service brokers, along with executing trades, can also serve as commodity trading advisors for their clients. They can also provide a wide range of other services, including market research and business recommendations. First and foremost, brokers must be available to take orders and place trades. When orders are filled, they must immediately communicate specific information about completed orders to their customers.
Many full-service brokers keep their clients informed of any relevant news that may affect clients’ trading positions. Monitoring and maintaining financial information such as account balances and other pertinent data are also included in the tasks typically performed by a commodities broker. To work on the floor of stock exchanges, a commodity broker must own a share in the exchange.
Most brokers are employees of brokerage firms that have exchange associations. They are allowed to trade directly on the trading floor of the exchange. Many of these brokerages often have their own brokers who do business for the company. When the company’s brokers receive requests from the general public, these requests are passed on to the company’s brokers operating in the trading area.
Another category of brokers, known as introductory brokers, run their own companies. They trade for their accounts and have clients they have requested to trade with. Introductory brokers pass their orders on to the brokerage houses that do the trades for them. Introductory brokers receive a fee; however, they do not handle customer funds.
Generally, a commodity broker has a college degree. People who develop a solid academic background in courses such as economics, finance and business are off to a good start when entering this field. You also need to have an aptitude for sales, strong research skills, and excellent communication skills. The intense and fast-paced environment of futures trading also demands the ability to perform under pressure.
To meet the regulatory requirements of US state and federal agencies, brokers must pass the National Commodity Futures Examination. It is also called the Series 3 exam. The exam is a measure of a commodity broker’s competence and includes questions about the commodity market, trading knowledge and trading regulations. Registration with the National Futures Association is also a condition of practicing as a commodities broker. Stockbrokers working on the trading floors do not need to take the exam, but they do need a rigorous training program.
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