Finding the Right Commodity Broker

Finding the right commodity broker is one of the most critical steps to achieving success in the commodity markets. This is far more important when you are allowing the broker or CTA to help make the trading decisions on your account, rather than using an online broker to place your own trades.
Not all commodity brokers are created equal. There are many who are very young and inexperienced. 

This isn’t always a bad thing, but you want to use a broker who exhibits knowledge, skill and success. This can be measured through discussions with the broker and reading his market commentary or watching any interviews the broker might have on record. Typically, a market veteran of 20 years will give you a better feeling over a first year broker.

Researching a Commodity Broker

There will be little information that you can find on the majority of commodity brokers other than the fact that they are registered and the name of the firm where they work. All other information will be obtained through discussions you might have with the broker.

This can be a time consuming process, as it will take a series of conversations to get a good feel for a broker. It can also be a random process as you might simply get to speak with the broker of the day.

One of the better processes is to find a broker who publishes a newsletter or regular market commentary. Here, you can read how the broker interprets the markets and how he trades. You should be able to find out how knowledgeable he is on the markets through the writings. It usually lends more credibility if the broker is published on other websites or periodicals like Futures magazine.

Another option is to look for brokers who are regularly quoted or interviewed in places like the Wall Street Journal, CNBC, Futures or Bloomberg. They usually screen these analysts before they quote them or do an interview. That doesn’t mean they verify their track record, but they can usually tell whether the person is a credible source or not.

The most successful brokers typically take larger accounts than those who are struggling. Look at it this way – if you were struggling to make your clients money, you would probably take any small sized account. If you have been in the business for a while and your clients did well, you would probably only want to take larger accounts. It is much easier to handle fifty $100,000 accounts than 2,000 accounts that are $2,500. Some have this luxury, others don’t. In all fairness, some brokers are just getting started and they will certainly take smaller accounts. They may or may not be excellent brokers and traders.

Most people opening commodity accounts with full service brokers are simply looking for someone to manage their trading so they can make money. In this case it is very important to find a broker who gives you a comfort level that he or she can help you make money.

Some people ultimately want to learn how to trade commodities. In this case it can also be worthwhile to use a full service commodity broker. You will pay a higher commission rate, but the broker can teach you how to trade as you go along. You might not be able to find an upper tier broker who will help you learn to trade unless you open a large account. However, there are many knowledgeable brokers who can help you.