The first step towards successful trading in commodities is choosing the right broker. They act as the intermediate between you and the exchange. Thus, they are a crucial part of your commodity trading experience.
Commodity brokers are authorised members of commodity exchanges. They act as agents between the buyers and sellers of commodity futures for a fee. You approach brokers and place an order to buy or sell commodity. They, in turn, ensure your trade is undertaken.
Commodity trading is a specialised skill. Not all commodity brokers can trade successfully. That is why an investor must be careful while choosing the commodity broker. Here are some tips for selecting the right online commodity broker.
Shortlist a few brokers
The investor should look at all the options and shortlist a few brokers. Many online resources provide broker information, reviews of services, and past performance. These can guide the investor in the shortlisting process. The investor may also consider suggestions from family and friends who invest in commodities.
Check for credibility and experience
The investor should consider the number of years the broker has spent in the commodity market. Reviews and ratings can give the investor an idea about the broker’s credibility and knowledge. The broker’s net worth is also an indicator of their trading skills.
Compare brokerage and other charges
Once the investor is assured of the broker’s quality and experience, it is time to compare trading fees. Brokers with lower fees are, of course, preferable. The investor should also look for a discount. Some brokers offer a discount on the fee if the trading volume is above a certain level.
Quality of trading platforms
Brokers give investors a platform on which to buy and sell commodity futures. These platforms include websites, smartphone apps, and more. Through them, he can also access other tools and resources like market reports, newsletters, and charting software. The investor should check whether the platform has a user-friendly interface and whether it offers helpful resources. Timing is crucial while buying and selling commodity futures. The investor should ensure that the platform works smoothly. He/she must not lose time while trading due to technical problems. The investor can also ask the broker for a demo of the platform before signing up for the service.
Customer support and trading tips
The broker should have a prompt and efficient customer support team. The investor should also have access to trading tips and other research material from the trader.
Rapport with the broker
The broker and the investor share a long-term relationship. So, there must be a strong rapport and mutual trust between them. The investor must also clarify to the broker his needs and objectives for trading in commodities. For example, does the investor want to gain from huge price fluctuations or hedge against risk? The investor must also explain the level of risk he/she is willing to take.
After choosing a broker, you – the investor – must understand the process of depositing a margin with the broker. We will deal with this concept of margin and the process of depositing it in the coming chapter.