What to Look for in a Futures Broker

What to Look for in a Futures Broker

Choosing a futures broker is one of the most basic and foundational steps to getting started trading futures, yet it can have implications on your trading success for years to come. Making a bad decision and choosing an unreliable or untested broker could land you in serious financial difficulties, and if your chosen broker is less than reputable you could end up being ripped off, particularly online. For this reason, it’s imperative that you know what you’re looking for when choosing a futures broker, and you should make sure you draw up a checklist of the key points for you to allow a like for like comparison between different market providers.

Reputation

Reputation isn’t always necessarily a gauge of the best futures broker, but it usually helps you determine those you should steer clear of. There are many brokers online that simply aren’t worth the hassle, and finding out about them straight up can be a great time and money saver. Great places to check are forums, comparison sites and (legitimate) blogs, and searching for your chosen broker should reveal whether or not their reputation is up to much. Bear in mind that every broker on the planet will talk a good game to get you to sign up – the trick is not to take what they say and present at face value.

Regulation

Any broker you trade with must be regulated by the relevant authority in your jurisdiction – in the UK, that’s the Financial Services Authority. It is an absolutely essential requirement when depositing your cash with anyone online that they are regulated and adhere to the principles laid down by the regulator. This is the only way to ensure you are working with a legitimate provider and to safeguard your trading and your investments. Even still, don’t accept claims to be regulated and authorised by the FSA at face value – do your own investigatory work. It doesn’t matter how professional a broker looks – you’re far better to be safe than sorry.

Usability

How functional is the broker’s trading platform? Can you trade on the move? Is the interface intuitive to navigate? Usability is a key factor for choosing a futures broker, and you’ll have to live and work with the platform you’ve chosen. Open a few demo accounts when considering your options and try out each of the different platforms – it pays to know exactly what you’re signing up for before you pay down that first margin, and it’s better to find out how to use a system to help make your judgement than to decide on other factors and retrospectively try to get the hang of a new and unfamiliar platform.

Costs

The comparative costs of trading and financing your positions should also factor in to your consideration. Execution-only type futures brokers should be able to offer relatively low transaction prices, but it is worth shopping around to make sure you’re getting the best deal. Different brokers will have different approaches to pricing, and make sure you always read the small print to work out exactly what your ongoing trading costs will be. Remember that even a fractionally higher trading prices could lead to a significantly more expensive trading experience over time, and will eat directly into your trading profits, meaning you’ll have to trade better for the same return. Cost should be the only factor you consider, but it is nevertheless an important one in helping differentiate between different providers.

Minimum Deposit

What is the minimum deposit amount required to set up your futures account with your chosen broker? Some accounts require reasonably hefty minimum deposit amounts, whereas others can be opened for next to nothing. This is important because, as a new trader, you’ll want to make sure your money is in safe hands, and that you’re happy with the setup at your broker. If you have to spend a bomb getting your account setup, it’s perhaps better to look elsewhere.

Margin

Try to find out the respective margin requirements for each of the brokers you select. This has a direct bearing on the amount of leverage you can build in to your futures trading, and really makes a difference to your immediate exposure to risk. A higher margin requirement means you are required to cover more of a proportion of each trade – a situation which doesn’t lend itself to the kind of highly leveraged transactions you might be anticipating. Margins can range anywhere from between 5-15%, so it’s important if possible to make sure you’re aiming towards the lower end of that scale.

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