Commodity Brokers Ability to Make Profits
Sorry to say, but this is a big fallacy to the general public. Most people cannot consistently show
a profit trading commodities and the Commodity Broker is no exception.
Issues Facing Commodity Brokers
Having been a commodity broker myself, I know the issues facing brokers. I believe most Commodity Brokers
truly use their best efforts to make money for their clients. Unfortunately, it is not easy to do so. Also, Commodity
Brokers need to get paid through commissions. The larger the commission...the more dificult it eats into the profits or adds to the losses.
This is assuming you are trading with a knowledgeable and experienced broker. The problem is that some commodity broker
can and will never be able to make money for their clients and some unscrupulously just rack-up trades to
generate commissions and eventually burn through accounts.
What is the solution?
The common-sense solution is to trade less. Commodity Brokers should recommend fewer trades wait for excellent
opportunities. The problem with this situation is it requires alot of work from the Broker with only a small
payout - few trades equals few commission. And in this age, everyone is looking for lower rates. The ideal scenario
is for the Commodity Broker to charge a higher dollar commission per trade and do less trades. Clients need
to understand this conflict and not expect the broker to accept meager pay for his work. The best situation would
have the client pay the broker a small amount per trade and share in the profits of the trades. That would provide
an incentive for the broker to be successful. One last note...Traders shouldn't be trading for "action", they should be
trading to make money. Be patient. trading is actually quite boring and methodical for the most successful traders.
How to Interview a Commodity Broker
Should you just take his word that he can make you money and send your check? Probably not.
Lets face it. If you are thinking about opening a $5,000 account and want a broker to teach you about the markets,
you are probably not going to speak to someone with 20 years experience trading in the Soybean Pits. The better they are and the
more experience they have, the more money you are likely going to have to put up for the to manage. If you were a broker,
would you want to handle 10 accounts of $100,000 each or 200 accounts of $5,000 each? That should be easy to understand.
Therefore, you can still expect to find a knowledeable commodity broker who can manage your money and help your account grow.
So, we need to ask some questions. First of all, ask them about their trading strategy. Do they use options,
option spread, futures, fundamental and/or technical analysis? What is their criteria for entering or exiting a market?
Will they place all your equity into one trade? What are the commissions and how often do they trade? What
markets do they trade? How long have they been trading? These are some questions that should cover most of
the basics. Lets take a look at some good things to watch for and some things to make you cautious before
choosing a commodity broker.
The Good: The Commodity Broker has an organized plan for entires, exits, and money management. He/she is also
keeping in mind what your risk preferences are and whether you want to be educated on the commodities markets.
He should be able to walk you through some trade current trades and some prior actual trades. Look for general market knowledge
and current market conditions. The Commodity Broker should be able to give you a quick update on most
markets without having to think about it. Expect examples of losing trades as well. This is not a game of 100%
losers. Everyone has losses and even horror stories. That is how we learn our lessons.
The Bad: Be aware of the Commodity Broker who only recommends the Hot Markets or Seasonal Trades such as Heating Oil in the
Fall/Winter and Grains in the Spring/Summer. Commissions near or over $100 per contract and a Commodity Broker
who wants to invest all your equity in multiple option spreads may be a red flag. You should check the Broker's and
Firm's regulatory history. You can try
FuturesBuzz.com - Brokers History or
NFA to check the complaint history of the Broker.
More in-depth articles to follow. Check back regularly.
Disclaimer: TRADING IN COMMODITY FUTURES OR OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.