Futures Broker

Written by Patricia Tunstall
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Although the futures exchange developed out of the need of farmers to have a convenient, centralized market for their goods, today's participants include financial institutions and international corporations. The trading pit in the exchange seems to be bedlam, yet, behind the clamor are participants who have a purpose: the speculator, the hedger, the floor trader, the broker. Speculation is responsible for much of whatever liquidity the futures market has, as speculators buy when prices are lower than expectations, and sell when prices are thought to be too high.

Hedgers are interested in locking in a price as insurance against rising or falling prices. They may also lock in a favorable margin. By transferring risk, hedgers can protect themselves against fluctuations that would adversely affect their position in the market. Floor traders are independents who are trading for themselves and, along with speculators, bring liquidity to the futures market.

The Futures Broker Is Strictly Regulated

The most important participant from the general public's view is the futures broker. This is the person who directs investments from clients. The federal Commodity Futures Trading Commission (CFTC) regulates brokers and brokerage firms, and authorizes the National Futures Association (NFA) to register all categories of brokers and firms that manage clients' funds.

The purpose of this governmental oversight is to prevent unfair dealings and operations, and to provide a source of information and protection for the general public. The futures broker must be registered, and is subject to a thorough background check before cleared for registration. Any futures broker, or brokerage firm, must segregate, and keep an accounting of each client's funds. Each contract directed by a futures broker is examined by CFTC trading experts.


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