Who is a commodity broker

Often these traders are dealing in raw materials used at the beginning of the production chain. Examples include copper for construction or grains for animal feed.

Some operate independently, trading on major exchanges such as the New York Mercantile Exchange, and others work for international oil companies, mining companies, or other large commodity producers. A commodity trader working for a manufacturer or producer wants to secure the best prices on purchases while simultaneously supplying competitive bids to customers.

Still other commodity traders work solely as broker-dealers like Vitol or Trafigura. Professional traders working for brokerage firms help in creating a deep and liquid international commodities market. Commodity traders sometimes act as speculators and attempt to make profits on small movements in commodity prices.

These commodity traders do not really need the specific asset they are trading and rarely take delivery, but seek to gain exposure through forward and futures contracts. They go long if they believe prices are moving higher and short the commodity when they expect prices to fall.

Commodity traders react quickly to market-moving events. Examples include natural disasters that can impact different commodity markets at the same time. A hurricane can wipe out sugar or orange crops, sending these prices up on reduced supply. At the same time, lumber prices shoot up in anticipation of new building and reconstruction costs.

Commodity traders need to be fast enough to react to such quick developments in order to trade profitably. Slow reactions can result in hefty losses if the market takes a quick turn in the wrong direction. A commodity trader faces certain limitations compared to traders in other markets For example, commodity traders generate a total return solely from the price movement of the commodity they are trading.

Unlike stock or bond traders, who can earn a dividend or interest payment from the asset they buy, commodity traders do not receive such periodic cash flows. Definitions Clear explanations of natural written and spoken English. Click on the arrows to change the translation direction. Follow us. Choose a dictionary. Clear explanations of natural written and spoken English.

Usage explanations of natural written and spoken English. Grammar Thesaurus. Word Lists. Clients may be required to have a certain minimum gross income or net worth. A minimum operating line of credit or bank cash deposit may also be required. These conditions are in effect to protect FCMs from clients who are financial unstable.

Some of these guidelines may be reduced or waived under certain conditions, especially for clients who only plan to hedge in their trading accounts. Farm managers, who are talking to prospective FCMs, should ask for details of each firm's client financial requirements before choosing to use a firm's services. Introduction Farm managers planning to use futures and options as part of their marketing plan must use a commodity broker to buy and sell their futures and options.

Step Two The next step in choosing a broker involves talking to several firms and their brokers either by phone or in person.

Client protection FCM s who accept futures and options trade orders on behalf of Alberta farmers must be registered with the Alberta Securities Commission or with the Investment Dealers Association, or both. Types of brokers Clearing brokers A clearing broker is employed by a company that has the right to trade directly on the various commodity exchanges.

Introducing broker An introducing broker takes futures and options orders from customers and relays them to a clearing firm to have the orders filled at the exchanges. Find out more here. Accept cookies. Free psychological tests 1,, taken last month. Commodity brokers act as intermediary between buyers and sellers of movable and immovable property such as raw materials, livestock or real estate.

They negotiate prices and receive a commission from the transactions. They research market conditions for specific commodities in order to inform their clients. They make bid offers and calculate the cost of transactions.