What Are Commodity Futures Brokers
Whether you are engaged in stocks, foreign exchange or commodities, you will begin your journey with a brokerage firm. This is especially true if you are trading alone and want to get some guidance on how to make your investment successful. But what exactly are commodities brokers? How exactly can they assist commodity traders? Before we are able to define who (or what) they are, we first need to understand the different clients they provide services to.
The 3 Types of Clients of a Commodity Futures Broker
The first type of client is an investor who is seeking to diversify his portfolio and would like to put 5-10% of his capital into commodities. This type of trader may be expecting average returns from his investment but will probably use a full-service broker to manage his account. Another type of client is someone who wants to understand how the commodities market works and will use the broker to provide him with guidance and market education. This client may want to trade by himself in the future and will probably have plans of trading commodities full time.
The third type of client is one who likes to roll the dice. He expects to take advantage of the low risk-reward ratio and create huge profits from his investment.
How Commodity Futures Brokers Address The Needs Of Each Type Of Client
For the first type of client, brokers are expected to create a trading plan which will cover aspects such as the commodities being traded (why they chose it), a trading strategy that can guarantee profits and a money management strategy to minimize losses. Brokers will also need to provide a regular update on the progress of the client’s account, and is responsible for evaluating (and adjusting) trading plans in case of losses.
The second type of client can expect a broker to impart him with knowledge, as well as patience, especially in times of hardship. Because this client wants to learn about the markets and to gain as much experience as possible, the broker must provide a blow-by-blow assessment of the strategy being used, its advantages and disadvantages and how it could perform in different types of markets.
The last type of client can expect their brokers to provide them a heads up if the market is expecting a big move. In this case, the broker may ask the client whether he wants to create an open position before a major report is released or if external conditions are already affecting commodity prices.
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