What Is a Commodity Contract Broker

In addition to building a comprehensive trading plan, choosing a broker is an essential element to ensure a positive push in the futures markets. It is imperative that a commodity broker is competent, technologically competent and reputable. If these properties are missing, it`s time to expand your search. Hedging a commodity can cause a company to miss favorable price movements because the contract is firm. The next step in choosing a broker is to talk to multiple companies and their brokers over the phone or in person. Talking to multiple companies will help you make a choice based on the financial requirements and service level of each company. Talking to more than one broker in each firm will help you choose a broker with whom you feel comfortable on a personal level, which is also important. Several types of traders are active in the commodity market. Often, these traders are raw materials that are used at the beginning of the production chain. Examples are copper for construction or grain for animal feed. Some work independently and trade on major exchanges such as the New York Mercantile Exchange, and others work for international oil companies, mining companies or other major commodity producers. A client would call his IB with a transaction he wanted to place.

The broker would accept the order and provide him with a timestamp. You would then immediately call FCM, which processes IB orders; They would then forward the same transaction that their customer called. This call often went to a telephone bank at the exchange office, where an employee took the order. Many investors confuse futures with options. In the case of futures contracts, the holder has a duty to act. Unless the holder settles the futures contract before it expires, it must buy or sell the underlying asset at the specified price. For example, a plastic producer could use commodity futures to obtain a price for the purchase of natural gas by-products needed for production at some point in the future. The price of natural gas – as with all petroleum products – can fluctuate widely, and since the producer needs the natural gas by-product for production, there is a risk of increased costs in the future. For example, suppose a farmer expects to produce 1,000,000 bushels of soybeans over the next 12 months.

Typically, soybean futures contain an amount of 5,000 bushels. The farmer`s break-even point for a bushel of soybeans is $10 per bushel, which means that $10 is the minimum price required to cover the cost of making soybeans. The farmer notes that a one-year soybean futures contract is currently $15 a bushel. A commodity broker is a company or individual that executes orders to buy or sell commodity contracts on behalf of clients and charges them a commission. A company or individual acting on its own behalf is called a trader. Commodity contracts include futures, options and similar financial derivatives. Clients who trade commodity contracts are either hedgers who use derivatives markets to manage risk, or speculators who are willing to take that risk from hedgers in the hope of making a profit. [1] Broker/ground trader: a person who trades commodity contracts on the floor of a commodity exchange. When executing trades on behalf of a client for a commission, he acts in the role of a broker. When he acts in the name of his own invoice or on behalf of his employer, he acts in the role of a merchant. Ground trading is managed in the pits of a commodity exchange through an open outcry. A ground broker is different from a “ground trader”, he or she also works on the floor of the exchange, trading as a client on his or her own account.

[4] Unfortunately, not all brokers are created equal. Incompetence, insufficient resources and unethical business practices are elements that regularly plague the industry. However, with a little research, it is possible to find a reliable broker who can help you achieve your market-related goals. Commodities such as grains, commodities, metals and energy products are traded through standardized contracts called futures. A commodity futures contract is intended for the future delivery of a certain quantity of a commodity. Commodity contracts are used by buyers and sellers of goods to guarantee the future delivery price, and by traders who want to take advantage of changes in the prices of goods. Commodity brokers make it easy for the average investor to trade on commodity markets. In addition to owning a seat on an exchange and trading in commodity wells, most people have to trade through a broker.

Cannon Trading has been in the futures trading business for almost 30 years and has received several customer service awards, including the 2016 Star Award as a leading brokerage service provider with a flagship website that offers an informative blog. Since 1988, we have maintained a good and trustworthy reputation with the CFTC and NFA. All your online transactions are safe and secure with high-quality encryption (AES-256, 256-bit key). . . .