Choosing a Commodities Trading Broker
With hundreds of online commodity brokers to select from traders might not know which commodity broker to choose. A trader may not know which factors to look for when choosing their broker, this tutorial will explain to traders more about commodity brokers & what factors traders should consider before deciding which commodity broker to open an account with.
In commodity trading there is no central market where trades are settled, instead trades are carried out in an Over The Counter market. Because there is no central commodity market place trades will be settled in the online interbank market. This online interbank market is composed of a network of big banks. For traders to gain access to this commodity market they must trade through a commodities trading broker. The commodities broker will place trades in the interbank market on behalf of the traders.
Traders cannot trade directly on the interbank market because they do not have the capital to setup the technology for doing this neither do they have the required minimum capital that is required by the big banks to allow them to trade directly in the commodities trading market. For this reason retail commodity brokers exist so as to connect retail investors to the online interbank market. Retail brokers will allow traders who do not have a lot of capital to trade in the commodities trading market.
Commodity brokers also provide commodity trading leverage so as to help traders to open trades with borrowed funds. Because commodity lots are traded in units and most retail investors cannot afford this, the brokers provide this commodity trading leverage so that traders with little capital to invest can also be able to trade the commodities trading market on borrowed fund. The borrowed funds are borrowed from the broker, a broker providing commodity leverage of 100:1 means that traders can borrow up to 100 times their capital, therefore a trader with only $1,000 can borrow up to 100 times which means $1,000 multiplied by 100 is $100,000, this $100,000 will be the capital that is available to the trader after using commodities trading leverage & therefore the retail trader who only has $1,000 capital can now trade standard lots.
Factors To Consider When Choosing Your Commodity Trading Broker
The following factors should be used to figure out which commodity broker you'll choose to trade with.
Regulation - The first thing to consider is commodity broker regulation license. You should only open an account with a broker that is regulated. In commodity trading the most reliable and most transparent brokers are the ones that are regulated. This is why this is the first thing that most traders will look for before they even start considering whether to open an account with a particular commodity broker or not.
Withdraw Policy - Try to find out the withdraw policy of a broker before opening an account with them. Best withdraw policy is one where you can withdraw your money any time you want without any questions asked. This policy should also provide that the withdraw should be instant if you're using a credit card to withdraw or should take 1 business day if you withdraw using bank wire method
Execution Policy - the best execution policy is a no requotes execution policy where orders are executed within one second or less. This means that as a trader you can open & close trades quickly & your trades should be requoted. A requote means that you will have to place a trade again once the trade is requoted. A requote will happen if the execution of your commodity broker isn't fast enough which means that the commodity quote will change before you've completed putting your trade & therefore you've to make another trade.
Commodity Trading Quotes - traders should choose a broker that provides a wide range of trading instruments that they can choose to trade. In addition to commodity, traders may choose to select commodities broker that offer other financial instruments for trading such as commodities, CFDs, Futures, Metals such as silver & commodity and stock indices.
Commodity Platform - choose a broker that uses MT4 platform. Almost every commodity broker uses this platform. As a trader make sure that the trading platform of the broker you select allows automated commodity trading especially for those traders that trade with automated commodities bots.
A trader might also use other factors to decide what commodity broker to open an account with based on the preference. On this site traders can also find a list of the top 100 commodity brokers on the broker ranking section of this site & traders might use this list to find the broker of their choice.
