Picking a Quality Futures Broker

Someone new to futures should not use the costs of commissions as their sole basis for deciding which type of broker to work with. There are two types of brokerage firms, full service brokers and discount brokers.

Full service brokers typically charge $75 to $150 per transaction/contract. Most full service brokers offer six premium services: trade development, trade execution, trade monitoring, post trade evaluation, client account auditing, and they will act as your liaison to the futures investment world. The value of a full service broker is easily seen when it comes to time. For instance, at a transaction cost of $150/contract, if it takes your broker 20 hours to fulfill his six premium services, you are effectively paying someone $7.50/hour to develop and manage your investment. Is your time worth more than $7.50/hour?

Discount brokers perform one duty: trade execution. They send your orders to the trading floor and give you the price your trade was executed at. That's it. The other five premium services are not offered. Discount brokers typically charge $10 to $50 per transaction/contract.

System traders are interested in trade execution only. Other traders just buy into the extremely inexpensive costs that discount brokers provide. But unfortunately they find the services incompatible with their lifestyle. Ninety percent of discount traders have time to monitor their futures trades all day long.

When working with a brokerage, full service or discount, look for one that best fits your lifestyle, your trading needs, and offers you the best value for both.