The popularity of commodity market has grown immensely in the last two decades in the U.S. It has one of the most developed commodity markets in the world. There are more than 1500 commodity brokers in the U.S and a majority of them are concentrated in the Chicago area. It’s the main hub of commodity trading in the U.S. Commodity trading is a highly specialized job and not all brokers are equipped to deal with it, that’s why the task of selecting the right commodity broker becomes difficult. Using Excel database functions is not going to help you make your decision. Here are the following tips to select the right online commodity broker:
Check The Site Responsiveness
Commodity trading is a high risk trading as the leverage is quite high in the case of futures and options contracts. The speed of execution really matters a lot similar to forex trading tips. Traders can’t can’t afford even 1 second latency in the trading system. Many traders prefer a low brokerage rate and often ignore the effectiveness of the trading system. Such attitude only harms in the long run. Therefore, check whether the internet connection is fast enough.
Check The Quality of Execution
Check whether the broker provides the National Best Bid as required by the Securities and Exchange Commission. According to this requirement, it’s important for the broker to provide the best bid buy price while selling securities. Know whether the broker can guarantee this.
Check Brokerage And Other Charges
If all things are similar in two brokers, opt for the broker that offers a low rate and also provides the volume discount if your trading volume exceeds a certain threshold level. So, if you are a daily trader and place orders frequently, it seems a sensible option to opt for a low rate broker, like the Baron Small Cap Fund. In fact, you can save a lot with a low brokerage rate.
Keep Commission Costs Under Control
In addition brokerage rates, you should pay attention to the commissions for your online trading broker. Depending on the type of investment securities that you are trading, there will be varying costs with each transaction. Some online brokers have zero-transaction-free pricing for options like mutual funds and bonds. In other cases, you might have to pay per transaction. Depending on your trading strategy, find out how much you would be paying with each online commodity broker. This will keep your costs under control while investing in the short or long term.
Simple User Interface
Commodity trades are done in futures and options as these are considered a type of derivative trade. These trades involve intricate concepts such as limit order and mark to market. In such a scenario, the situation becomes really complex when you are puzzled over to place the order. Make sure that the broker uses a single page order placement form.
Good Charting Software
Commodity trading is done on the basis of technical analysis. The broker’s system should have advanced real time charting facility so that you can analyze your trades quickly and pounce on the profitable trading opportunities as an when they happen. Obviously, to make great trades, you will need to know the appraised value of a commodity or company in the industry.
Be Your Own Commodity Broker
You could always choose to become a commodity broker yourself. But how do you become a commodity broker? It is similar to the method to become an accountant. As long as you have a degree, you can become a licensed commodity broker by taking the Series 3 exam. Passing the Series 3 will allow you to be licensed and registered with the National Futures Association, or NFA. If you are a do-it-yourself kind of person, consider becoming a commodity broker by taking the Series 3 examination.
If you are new to commodity trading, you should research diligently while choosing the commodity broker who can also provide some wealth advisory. It’s the first step towards trading success. Your trading success will be largely decided by the understanding between you and your broker. There will be many situations when you will have to depend on your broker, so you can’t afford to go lax on this front.