10 Questions to Ask a Futures Broker

December 28, 2017 11:19 AM
Essential due diligence before you start trading.

3. Do you have a working knowledge of the fundamentals and technicals of the markets I wish to trade?
A good broker does not pressure clients to trade. There are a lot of good brokers out there but you need to pick a broker who fits your type of trading style — find somebody you can work with. If you’re going to work with a full-service broker, find one who can provide a favorable online trading platform. There’s a lot of attraction for some people to trade with electronic platform trading companies because there’s very low commission, but at the same time there are a lot of traders that probably wouldn’t do as well in that environment because of margin requirements and restrictions. Flynn says, “Sometimes there are restrictions on going short option trading. So in those cases you might be better off with a kind of blue-chip service firm.”

If you need help, either in learning the particulars of the market or execution, it’s best to find a broker that can hold your hand. Once you become more sophisticated and comfortable you can always take more control of your trading.

4. What kind of customer service do you offer?
It’s not like a stock account. Once you have money in the futures account it’s not set-it-and-forget-it, you should watch your statement everyday. “It’s important to monitor this and never put on a position and go on vacation,” says Flynn. Often there can be mistakes made. “There are times where costumers forget they placed orders and it can be very expense.” It should be the overall value of service a broker offers as it pertains to the needs of a particular trader that a trader should focus on when choosing a broker.

Pick a broker who matches your style. If a broker has several high net worth customers, he may not be very attentive to your smaller account. Make sure you are on the same page.

5. What about news reports, services and charts? What’s included and what will cost me extra?
As previously reported by Modern Trader magazine, in this area you should start by finding out what kind of extras you will need in terms of data and services. Does this broker’s system offer all of the quotes, charts, news and research you need? Are there live market data and capabilities offered? Find out what trading tools are available. Some brokers charge extra for real-time quotes and some offer a limited quantity of real-time quotes included in a trading system package, and then charge an amount for extra quotes used. Some brokers may also charge for charts, which most traders view as pertinent to trading.

You will want as many tools as you can get. Even if you plan to trade from a fundamental perspective, it is mportant to know the technicals because other traders trade off of them and you’ll need to know at what levels technical traders are likely to be getting into or out of a market.

6. Are there account requirements?
Some brokers have minimum requirements on account sizes and different pricing structures for different accounts and you should find out which suits you best and which you are most comfortable with. According to Heritage West you should have received this information in the account opening packet sent to you prior to your meeting. If it was not included, you need to know this up front, in case the broker or firm requires a higher initial amount to start than you are willing to put into a trading account. During this discussion you should also talk about the firm’s margin requirements and call procedures. Firms can have different policies regarding margin.

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About the Author

Tamarah Webb is the associate editor for Modern Trader magazine and Futuresmag.com. She was born in Hawaii and has moved numerous times being privileged to live in places around the world through the military. Tamarah is a recent journalism alumna of Columbia College Chicago where she minored in cultural studies.