Check The "Fees" Before You Open An Account With A Commodity Broker
Having been involved in the Futures Industry for many years, I have managed to develop a few pet peeves. One of them is misleading commission rates that commodity brokers post on their websites and in advertisements.
If you have ever traded commodities you have seen a number of additional fees on your trading statements. These can include the broker commission, NFA fees, exchange fees, clearing fees, other fees, etc. A commission quoted as $10 can easily turn into $20 with padded fees. The exchange fees and the NFA fees are fixed, but the "padding" usually occurs in the clearing and other fees. Be sure to fully go over ALL the fees a commodity broker will charge you before you open an account.
Another area to watch for is when they quote half-turn commissions. It is common in the industry to quote commissions as round turn - both the buy and sell. However, some feel they can quote the half-turn rate to some of the new traders.
It all boils down to being able to compare apples to apples. Get everything down on the table of what the base commission rate is as well as any other fees that will be attached. I feel that it hurts a firm's credibility when they advertise misleading rates. Some, of course, won't know they are being misled and the commodity broker will still get the business and the client does not know what happened.
I do want to make an important point that the commission rate probably shouldn't be the most important factor in choosing a broker. However, I like to deal with a broker that is straight-forward and doesn't hit me with surprises.
By Chuck Kowalski
About the Author:
Chuck Kowalski has been involved in the commodity and futures markets as a Commodity Analyst, Broker and Trader for more
than 12 years. He holds degrees in Finance and Economics and is currently the editor of FuturesBuzz.com.