Commodities Brokers

Written by Patricia Tunstall
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Like futures trading, commodities trading is strictly regulated by the Commodities Futures Trading Commission (CFTC). For instance, futures contracts are standardized as to quantity, quality, and location. Buyer and seller negotiate only on the price. Every futures contract is examined by economists and trading experts of the CFTC.

Commodities Trading Advisers (CTAs) must be registered with the CFTC. Such commodities brokers could be individuals or members of a firm. In addition, your investment funds must be handled by a registered Futures Commission Merchant (FCM). So, in order for your money to be in the care of your CTA, this agent must also be an FCM. If not, your money must be forwarded to an FCM.

Role of Commodities Brokers

Obviously, a CTA gives advice about the commodities market. Before entrusting your money to commodities brokers, investigate them and any firm involved with your funds. CFTC regulations require that a CTA give you a Disclosure Document in advance of accepting your funds. This document has important information about the adviser, such as experience and performance.

The CFTC consistently cautions investors to be informed and read all documents carefully. If you don't understand some particular language, or don't understand the terms or jargon, ask for clarification. Ask about fees. What are the charges for services? If you opt for a managed account, discuss the trading philosophy of the adviser. How much input will you have?


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