Futures are also sometimes called commodities. They are traded on the stock exchange in the form of agreements made by the buyer to purchase a commodity at some date in the future for today’s price. The buyer is assuming that the price of the commodity will be higher on that future date, meaning that their purchase will be below market, and if then sold on that date, he will make an immediate profit. Futures brokers execute the buy and sell orders placed by clients.
Futures are not the same thing as options. As the name implies, options are instruments that give the client the option to purchase at a predetermined price. Futures, on the other hand, are obligations, and the buyer must fulfill that obligation. His broker may liquidate his position prior to that date, if the client so desires, by selling the client’s position to someone else. If the client chooses to hold his investment, the broker will finalize the trade.
A futures broker may or may not have a seat on the trading floor. If he does not, he will utilize the services of the broker in his firm who does have a seat. Information received from the futures broker will be executed by his co-worker who is licensed to trade “in the pit” on the stock exchange.
A discount futures broker will execute the orders received from a client. Few discount brokers include any other services for the client, at least without a separate fee. Those who use a discount broker will seldom have access to any market research or advice that is tailored to the client’s situation. Instead, most discount brokers merely buy or sell what is requested.
You can trade with a futures broker online or at a traditional brokerage firm. Typically, the online traders will charge lower fees, but their support services may be more limited. It would be beneficial for those considering the use of an online service to take the time to educate themselves on what futures are and how the futures market works prior to investing.
A full service futures broker typically offers more personalized service. He or she will keep clients informed of news that might affect the client’s trading position. The broker will keep clients apprised of the latest market research, the balances in their accounts, and makes recommendations.
Some, but by no means all, of the types of items traded with a futures broker include gold and silver, food crops such as soybeans, oat, wheat, and corn, and livestock such as cattle and pork. Cotton, lumber, orange juice, coffee, cocoa and sugar also fall under his expertise. Foreign currency, energy, and many U.S. Treasury bonds or notes can also be handled by a futures broker.
A futures broker usually has a degree in finance, economics, or business. In addition, he or she should have communication skills, sales aptitude, and research skills, along with the ability to perform in a fast paced and stressful environment. Futures brokers must also pass the Series 3 exam, or the National Commodities Futures Examination. They must also register with the National Futures Association.