A commodity broker is referred to be a firm or an individual who is entitled to sell or purchase commodity contracts. The purchase of commodity contracts is made on behalf of the clients who afterwards pay a commission. An individual or firm who trades for his account is called a trader. There are various avenues offered by the broker in this market in which the trader can trade. The system of trade in this segment is contract-based,and every contract has a specific value as well as the time frame by when one needs to square off the trade. From commodity to commodity,the amount of contract, value and time frame varies,which one must take into account before going for the same.
Commodity contracts generally work on financial derivatives, options, and futures. Commodity contracts are also called as hedgers. In the ancient past, these brokers traded in livestock and grain products.
Different types of Commodity Brokers
Firms and individuals who are included in commodity brokers are:-
Futures Commission Merchant (FCM)
When the commodity contract is traded on acceptance of any exchange that holds clients to margin the same as that of broker-dealer is termed as Futures Commission Merchant (FCM). Some of the traders do not work with FCM, rather deal through a CTA or an IB. High leverage commodity brokers are different from stockbrokers.
Floor Broker or Trader
A floor broker or trader is one who trades based on a commodities exchange. This commodity contract is referred under floor broker or trader. When the broker trades on behalf of the client in exchange for the commission to be incurred is said to be working as a floor broker or trader. When this broker is acting on his behalf or for his employer, he is said to be a trader. There processes an open outcry which is conducted based on the commodity exchange. Both the floor trader and floor broker are different from one another.
Introducing Broker (IB)
An introducing broker does not hold customer funds upon margin. It solicits or accepts orders for commodity contracts.
Commodity Trading Advisor (CTA)
This particular commodity broker is a firm or individual that advises others, compensates, or provides profit on the trading. Unlike, IB, CTA does not hold margin funds. CTA has the discretion of accessing client’s accounts. A commodity that equalizes with a financial advisor or mutual fund manager is termed to be a commodity trading advisor.
Apart from these commodity brokers, the left out brokers are commodity pool operator (CPO) or Registered Commodity Representative (RCR) or Associated Person (AP). The former is equivalent to mutual funds, and the later is indulged in a registered representative.
When it comes to finding a high leverage commodity broker, it is important to shortlist the right broker according to your requirements. Always try choosing a commodity broker who has relevant experiences in the field. If you can locate a broker who owes a standard net worth them, you should check his experience in terms of trading.