Choosing A Futures Broker

When you decide you are ready to enter the futures market, you will need to hire a futures broker to manage your trading account.There are “full service brokers” and discount brokers. If you’re trading online, an online discount broker probably is sufficient. A full service broker costs more and can provide some additional research and some more personalised attention and phone contact, but if you are relying on your broker to “hold your hand” or recommend trades, I can tell you that this is not a good idea. Most brokers are not traders - if they were, they would be trading for themselves.The easiest way to search for a futures broker is by using the Internet. However, your search for an “online futures broker” will result in page after page of listings for discount brokers. As you begin clicking on their websites, you’ll notice that each one makes the claim of offering the most service for the best price. Who do you believe?The truth is, many of those brokers fall short of their claims. They don’t offer the level of customer service they promise, they’re not up-to-date with the latest technologies, or they have “hidden” fees you don’t know about up front.Another way to find an online futures broker is to ask friends, other acquaintances, or successful futures traders for referrals. That may work, but if not, use these tips to help you choose an online futures broker.

Know what you’re paying for

Remember, if you plan to trade online, you probably don’t need a “full service broker.” An online discount futures broker offering services in an “a la carte” manner makes sense for many traders provided the brokers offer the services the trader needs. Paying only for the services actually used is one way to keep costs low.These are some of the services you might get from an online broker. You’ll probably get the broker’s trading software, which isn’t always free, but it will give you real time futures quotes and charts. When you use the broker’s software, your orders often go right to the trading pit. You’ll probably get some form of electronic correspondence from the broker that offers trade recommendations. Plus, you’ll probably get real time, accurate account balance information. It’s always good advice to confirm these services before contracting with the broker.It’s also important that you understand the online broker’s fee schedule, commission schedule, and the amount required to keep as a minimum account balance. Some brokers will require a minimum balance that exceeds the amount you have available to invest. Cross those brokers off your list right away.Next compare commission schedules. They vary significantly and will probably be your biggest trading-related expense. Some brokers list their commission schedule online, but for those that don’t you’ll have to request this information.

Know with whom you’re contracting

On the Internet, people can be or say anything they want. It’s up to you to confirm what you’re being told. Check out a broker’s references! A reputable broker won’t mind.Finally, call the National Futures Association (NFA) or check the website of your local futures exchange for the local equivalent to further check out your narrowed-down list of online futures brokers. The NFA keeps track of reported disciplinary actions against futures brokers. If you find that a broker has had consistent problems, you know to steer clear of them.