Commodity brokers have the option of focusing on an online trading business or a full service business. The margins are much smaller when it comes to online trading, but there is less work and stress. When it comes to full service, the commissions are much higher but a broker has to offer a useful service.
Being a commodity broker that focuses on online trading is more like being a salesman or a customer service rep. Online traders basically call their own shots and they want to pay the lowest commissions possible. This business is really built on volume. You need traders to make a lot of trades in order for it to pay off.
Online trading is about bringing in larger accounts and traders that trade a lot. A broker might make cents from each trade placed online, whereas a full service broker might make $20 - $50 a trade. Most traders who require a full service commodity broker don’t make a great deal of trades. However, if a broker doesn’t help his clients make money, he may not have the clients very long.
Focusing on online trading is a great way for new commodity broker to get heir feet wet in the industry. You can learn about the markets and develop some communication skills with clients, while not having to make any real decisions on the markets or any hard trading recommendations.
One of the biggest problems in the commodities industry is that fact that many brokers cannot help clients make money on a consistent basis. There is also somewhat of a conflict of interest in the fact that brokers make more commission dollars if their clients make more trades. Most new commodity brokers have only a basic knowledge of trading and have no business making trading recommendations to clients.
Most people become commodity brokers so they can learn how to trade commodities or teach others how to trade commodities. A bottom line fact is that almost all brokers have an interest in trading commodities. Those who focus on online trading do so because it is just a business decision or they don’t want to be involved in trading. This is actually very good to those who know their limitations. If you’re not good at trading, you probably shouldn’t be advising clients on trading commodities.
Most people might think there is more money to be made as a full service broker. That is normally true. A good commodity broker that retains clients over a number of years will do very well. Those who can’t help clients make money, will constantly have to replenish accounts. This can be a viscous cycle that will certainly put a limit on earnings.
There is also a drawback to those who focus on online traders. Many people who try to trade commodities also are fighting the odds. Most traders will lose money, whether they make the calls or a commodity broker makes the calls. This also leads to having to replenish accounts on a regular basis.
Commodity brokers who are good at making market calls and have some sales skills should concentrate on being a full service broker. Those who aren’t, should focus on online traders or raising money for managed futures. This is more of a sales role and customer service, but you have to know your skills. It can be a very difficult job having to make trading recommendations when you know you are not a good trader or analyst. There is plenty of money to be made as a commodity broker if you are good at trading or you are a good salesperson. The path you choose is up to you.
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