Futures Brokers Guide

5 Questions To Ask Before Selecting A Futures Broker

Finding a futures broker is an important decision you must make when deciding to trade in the futures markets. Your futures broker is your best friend: after all, you're giving him your money to invest with.

When selecting a futures broker, remember that you will develop a long-term relationship. Your broker will work for you, so you must conduct the interview carefully if you are to form a close working relationship.

In this regard, the following are 5 questions you should ask your futures broker before handing over your money:

1. What market do they specialize in?

Make sure your futures broker specializes in all the markets that you want to invest in. For example, do not trade in NASDAQ futures with a broker who specializes in the NYSE - you're asking for trouble!

2. How long have they been trading in futures?

With the advent of the Internet, there are now a fair number of brokers; some with less scruples than others. Consequently, ask the broker how long they have been trading, both as a futures brokerage firm and as a futures broker. Whether or not you are entirely happy with the answers you get to this question, ask them who their regulatory authority is and check them out with that (and if possible other) regulatory body.

3. Who are their notable clients?

Most futures brokers like to advertise their success stories, ask them who their notable clients are.

4. How much do you need to open an account and what is your margin account requirement?

You need to establish how much you need to open an account to start your futures trading career. At the same time you should also establish with your broker what your margin requirements will be and the brokerage firm's call procedures.

5. Find out what their commission is

In this regard, full service brokers normally charge a medium of $100 per transaction. Nonetheless, with the more you pay the more you should expect in the terms of service and execution time. Alternatively, discount futures brokers normally only offer trade execution services (not the investment advice services that full service futures brokers should be offering) and will, thus, typically only charge a bare fee of $10 to $15 per transaction.

It is very important that you explain to your broker what your short-term and long-term aims are. This information then needs to be periodically updated with your broker each time there is a change in your overall futures trading strategy.

Finally, trading is a game of skill. What is critical for the development of any skill is practice and experience. Look for a mentor to help you trade effectively.