10 Questions to Ask a Futures Broker

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

7. What is your track record like?
A broker’s reputation is important because it is one way of measuring his stability. Is he open to new trading ideas and techniques? Especially if he handles many clients, make sure he has availability for face-to-face encounters. Are most of the broker’s clients commercial hedgers, speculators or a mix of both? Most of these questions will be answered if you check his references.

Question the broker about their failures as well as their successes. They will have both so it is important that they can be honest about this.

8. What is your execution and technology?
According to TradingSim.com, execution of orders plays an important role and can be one of the few things that can be the difference between a winning and a losing trade. While most day traders tend to focus on fees, margin and leverage (which are important), execution of the trades should not be underestimated. No matter how good your trading strategy may be, slippage can eat away into your profits and can add up to a significant amount over a period of time.

Besides execution, traders should also ensure that the futures brokerage offers you flexibility in terms of placing and modifying orders as well. Rick Tomsic, founder of Tradovate Holdings, LLC says you should easily be able to log in to check quotes and place trades on your phone or tablet. Does using the platform feel as easy as hailing an Uber ride or does it feel more like using a dial-up modem? Investors should be able to “take a look under the hood” in simulation to see if the platform has a clear and visible layout of key trading functions, and is not stuffed to the gills with obscure bells and whistles.

9. Do you offer educational seminars?
A trader should ask about educational offerings. If you’re going to start trading, you’ve obviously done a good amount of research and homework on the markets, but as a novice you’ll still want to learn more. Ask about simulated trading and the extent of education offered on the platform you’ll be using.   

10. What are the commission fees?
Lastly, ask the broker about commission charges. As with most businesses, commissions vary with the amount of service. Also, make sure you understand all additional fees for value-added services.

While it sounds like a cliché, trading is a marathon and not a sprint. We are not talking about the duration of your trades, but the process of educating yourself. While it is natural to be excited and want to dive in, the more you know before you start putting money on the line, the greater your chances of success.    

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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.