Commodity Broker
A commodity broker is a person or a firm acting in behalf of a client in processing and closing orders to buy or sell commodity contracts. An experienced commodity broker is usually a trader who built a career in brokering.
Commodity contracts usually traded by a commodity broker include futures contracts, stock options and other derivatives. The scope of a commodity broker's work gradually increased over the years. Derivative financial products from metals, software, energy, stocks, bonds, equities, currencies, etc. are now included in the portfolio of a commodity broker. Futures on stock indexes and currency rates became part of the trade of a commodity broker as early as the 80s.
In Australia, an excellent commodity broker may be hired by big firms. An individual commodity broker may opt to stay independent when he has enough clients to sustain a profitable operation.
The Faces of a Commodity Broker
A commodity broker may be found trading contracts in the floor of a commodity exchange. A commodity broker assumes the role of a trader when he trades his own commodity contracts.
A commodity broker who simply solicits and accepts commodity contracts traded in the floor on a commodity exchange is called an introducing broker. A junior level commodity broker, who also does the work of an introducing broker but given the power to hold a client's fund to margin, is called a futures commission merchant. Most introducing brokers team up with a futures commission merchant.
A senior commodity broker can also be called commodity trading advisor. A commodity trading advisor is a powerful commodity broker because of the full trust and confidence accorded by his clients. They manage futures accounts using a power of attorney signed by a client which enables them to exercise discretion. A commodity trading advisor acts like a financial advisor or a mutual fund manager as far commodities trading is concerned.
A commodity pool operator, which is another role of a commodity broker, operates a commodity pool made up of clients of a partner commodity trading advisor. The commodity pool operator always works in tandem with a commodity trading advisor. A commodity pool operates in the same way as a mutual fund in the context of commodity trading.
A commodity broker assuming any of the roles mentioned must be duly registered and licensed to be able to perform their duties. They are also called registered commodity representatives, or persons associated with a firm licensed to function as a commodity broker.