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What does a Commodity Broker do?

By John B Landers
Updated Feb 28, 2024
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Commodity brokers typically function as agents responsible for executing purchases and sales of commodity futures and options. They routinely make trades for individuals, companies, or even for their own accounts. Generally, these brokers are employed at brokerage firms, work on the trading floor of exchanges, or act as independents. When performing as middleman on the behalf of others, brokers are typically paid a fee or commission. There are basically two types of brokers: discount brokers and full service brokers.

Discount brokers have the primary responsibility of filling orders based on specific instructions received from their clients. In contrast, full service brokers, along with executing trades, may also serve as commodity trading advisers to their customers. They also may provide a wide variety of other services, including market research and trade recommendations. First and foremost, brokers must be available to receive orders and carry out trades. When orders are filled, they must immediately communicate specific information regarding completed orders to their clients.

Many full service brokers keep their customers informed regarding any relevant news that might affect customers’ trade positions. Monitoring and maintaining financial information such as account balances and other pertinent data is also included in tasks generally performed by a commodity broker. In order to work on the floor of commodity exchanges, a commodity broker must possess a membership in the exchange.

Most brokers are employees of brokerage houses that have exchange memberships. They are permitted to trade directly on the floor of the exchange. Many of these brokerage houses usually have their own floor brokers who make trades for the company. When company brokers receive orders from the general public, these requests are passed on to the company’s floor brokers who operate in the trading pit.

Another category of brokers, known as introducing brokers, run their own firms. They trade for their accounts and have customers whom they have solicited for trading business. Introducing brokers pass their orders on to brokerage houses that place the trades for them. Introducing brokers are paid a fee; however, they do not deal with the customers’ funds.

Generally, a commodity broker has a college degree. People who develop a solid academic background in courses like economics, finance, and business have a good start when entering this field. An aptitude for sales, strong research abilities, and excellent communication skills are also required. The intense and fast-pace environment of futures trading also necessitates the capability to perform under pressure.

To meet the regulatory requirements of state and federal agencies in the United States, brokers must pass the National Commodities Futures Examination. It is also called the Series 3 exam. The exam is a measurement of the competency of a commodity broker, and includes questions on the commodities market, trading knowledge, and trading regulations. Registration with the National Futures Association is also a condition for practicing as a commodity broker. Brokers who work on the exchange floors are not required to take the exam, but must a rigorous training program.

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