Day Trading Not Your Style? We Can Help! Get a 30-day Trial of our Newsletter Here

20 Tips to More Successful Futures Trading

Get 20 Tips to More Successful Futures Trading with the "10 Do's and Don'ts of Trading Futures and Commodities" guide. This guide provides some of the basic principles that professional futures traders inherently live by and can help you increase your potential for success in trading futures.

Get your complimentary guide today!

Whether you currently work with a futures broker or are considering engaging one, we have put together a brief list of questions for you to consider before opening an account.

Before we start the list though, let's clarify what we mean by futures broker. We mean a person licensed to solicit business from retail clients; a person who can help their client:

• understand the commodities and financial futures markets
• present trading and investment opportunities
• execute trades

We are not talking about signing up with a trading guru (i.e. taking a trading class), buying a trading system or investing in a commodity pool (i.e. the futures industry's version of a mutual fund). At least not at this point; we can cover those subjects in later editions of this newsletter. On to the questions...

1) How well does the broker know the futures market?

Whatever the reason that has brought you to the point of trading futures (e.g. leverage, diversification, hedging, spreads), trade with someone who knows the futures markets. The rush to provide one-stop shopping in the financial services industry since the '90s, resulted in some firms with a list of products and services long on categories. But are they short on depth?

When a broker passes the Series 3 test (the National Futures Association's designated license for registered retail futures brokers), that indicates knowledge, not experience. Consequently, having 10 years of trading experience is great. But how much of that was spent trading futures?

It's better to speak to an expert in the market you are looking to trade. Think all markets are alike? Because of the complexities and nuances, specialization exists in the financial services industry just as it does in other professions.

2) What can the broker offer?

Let's look at this question in two ways: the vehicles you might trade and the way you might trade them. According to the CFTC, heading into 2008 there were over 1,350 actively traded contracts in the U.S. alone. Add in European and Asian markets, and the numbers of futures contracts you can trade becomes almost untenable. What breadth of product can you easily access?

But perhaps you already know the select markets you want to trade. You are self-directed and simply need electronic access with a solid tool set. (Be sure to factor in the cost of such a platform and whether "free" includes volume minimums). There are lots of brokers providing such platforms; many of them putting their brand on the same platform. Taking a test drive may help. Consider though whether you'll need assistance in certain markets (e.g. maybe you want to learn to control the risk of your long positions using options) or with certain technologies or at certain times of day.

How flexible is your broker in the way you interact with your account on a day-to-day basis? Is there a full-service option?

3) How accessible is the broker and your account?

If you're online, it's about system up time. If you're on the phone, it's about your broker answering it. What if he or she is not there? Is there a backup? Do you get an automated voice? Are you okay with leaving a message and having someone get back to you after the market closes?

When you do connect, what is the range of questions your broker can handle before having to transfer you somewhere else?

4) Do you trust the broker?

Ronald Reagan used to say: "trust, but verify". Now he was talking about nuclear weapons during the cold war -- a slightly different level of concern then a brokerage account -- but let's apply it. 

The National Futures Association provides free background checks of futures brokers and their firms through its BASIC service (Background Affiliation Status Information Center).  Access it on the web at www.nfa.futures.org/basicnet.

In addition, the U. S. Commodity Futures Trading Commission (CFTC) provides monthly financial data on firms clearing futures trades and can tell you the amount of assets a firm has under management and excess net capital. Visit www.cftc.gov/marketreports/financialdataforfcms/index.htm.

Individual firms have also drafted a statement of their financial integrity which can walk you through the processes in place to protect client assets; most of which are standard industry practices.

Weighting the answers to these and other questions that arise while selecting a futures broker depends heavily on your personal trading knowledge, experience and needs. We suggest that you consider them carefully.

With over 20 years in financial services, Mr. Szczech has worked with both institutional and retail clients in diverse roles such as managing director at the NYSE and as president of the Client Group at TD Ameritrade. He is currently the CEO of RJO Futures, the private client division of R.J. O'Brien & Associates LLC, in Chicago.

20 Tips to More Successful Futures Trading

Get 20 Tips to More Successful Futures Trading with the "10 Do's and Don'ts of Trading Futures and Commodities" guide. This guide provides some of the basic principles that professional futures traders inherently live by and can help you increase your potential for success in trading futures.

Get your complimentary guide today!