One of the considerations for a prospective client when it comes to a commodity broker is the level of commissions.
Although it is a valid concern, make sure that you fully understand about trading commissions.
Here are five things related to the commodity broker and commission rates.
Comparing Broker Commission Rates
In the electronic age, commission rates on trading commodities have declined dramatically. In the 1990s, many commodity brokers were charging in excess of $150 per round-turn, meaning for a buy and the sell transaction. Since about 2005, full-service rates have typically declined to between $30 and $80 per round-turn.
There are two kinds of commissions, namely commissions on futures and round-turns. For commissions on futures, the payment is per contract, not per order. Therefore, a transaction of 100 contracts is 100 times more expensive than a transaction of 1 contract.
For commissions on Round-Turns, make sure that you always compare commissions based on a round-turn rate.
A round-turn rate covers both the buy and the sell sides of a trade. A half-turn rate only covers the buy or sell side of a trade.
Full-Service Broker Commission
A commodity broker is in business to make money. But, one thing is that make sure they are paying for solid advice and recommendations, not for just the sake of paying commissions. It is highly unlikely your account will be profitable if you are a very active trader paying $80 per round-turn in commissions.
Negotiating Commission Rates
Many new traders will choose a commodity broker based on commission rates. There is a lot more to the commodities futures business than just the rate of compensation paid to the broker.
The main reasons for choosing a commodity broker should be whether you believe the broker will enhance the profitability of your account. If you feel the broker will be a valuable partner when it comes to helping achieve trading goals and objectives in the futures markets.
Active vs Seldom Trader Commissions
One must be reasonable when hiring a full-service commodity broker to execute and make recommendations. However, an active trader who pays a substantial amount in commissions on a monthly basis should make sure that the broker is prepared to devote the time required to service the account in a proper fashion.
The Time to Change Brokers
If your broker is making you a good return on your investment you may not want to rock the boat as in the world of commodity brokers, one often gets what they pay for.