Regulated Commodity Trading Broker Tutorial
Commodity Trading Select a Commodity Trading Broker
Factors to look for and consider when choosing a commodity broker
Regulation is one of the guideline of choosing a broker. As a new trader your first challenge is to choose the right one. The best ones are those that are regulated. This should be the type of firm that you should choose: a regulated commodity broker.
It is not as easy as it sounds to choose a good one and the whole searching process might leave you confused due to the huge competition between them, as they all offer different trading softwares, trading services, order execution and capabilities. Best criteria in selecting is to find a regulated one.
Regulated brokers have to submit all their transactions every year to the regulation authority for audit. This means that these companies cannot participate in any illegal activity such as money laundering. This is why your commodity broker asks for Identification documents and proof of residence from traders when they are registering, so when as a trader you're signing up and are asked for these documents when opening an account, you will know why they are being asked for.
Some of These Commodity Broker Regulatory Authorities are Listed Below:
USA
The NFA regulates all us based financial firms, official web site for NFA is https://www.nfa.futures.org/ where list of USA commodity brokers are listed. NFA doesn't issue license to other international ones, unlike other regulatory authorities, NFA will only license US based firms. NFA just like CFTC have very overbearing regulation rules that are not favorable to the traders themselves. After these two NFA & CFTC introduced these rules many international commodity brokers closed down their America based branches, Those that did not have America branches were forced to close & transfer the trading accounts of American citizens because CFTC threatened to sue any commodity trading based firms that isn't from USA if they open accounts for American Citizens. This is why most commodity brokers won't accept US Clients.
USA
CFTC regulates all America based financial firms, CFTC is Similar to NFA
Cyprus
The CySEC regulates all Cyprus financial firms, official website is https://www.cysec.gov.cy where you can search for registration & licenses number of those Commodity Trading brokers licensed by this regulator. The CySEC regulates brokers operating within the European Union Jurisdiction of Cyprus Member Country.
UK
NOW FSA has changed name FCA, & regulation details can bound from either FSA or FCA.
The FSA regulates all financial firms in UK, the official web site for FSA is https://www.fsa.gov.uk/ this website contains a list of commodity brokers licensed in the UK. FSA also registers other international firms and based firms from other countries that have an operating office within the UK. To check whether the financial institution you're trading with is regulated in the UK just go to FSA Register.
Germany
The BaFIN regulates all German financial institutions, website for BaFin is https://www.bafin.de & BaFin is Federal Supervisory Authority in German For Investment firms and institutions operating within German.
Australia
The ASIC regulates all firms in Australia
Japan
Regulates all Japan based firms
Switzerland
The FDF regulates all Swiss based firms
Canada
The CIPF regulates all Canadian firms
European Union Firms
MIFID is more of a Regulation Standard for European Union Brokers, than a Regulation Authority.
Mauritius
The IFSC regulates all Mauritius firms
Above Regulatory authorities are most trusted & the most famous regulatory authorities, it is best to open an account with a regulated broker that is licensed by one these regulatory authorities that are most popular regulators.
About USA Based Commodity Trading Broker Regulations and USA Regulatory Authorities
NB: One thing you should know about regulators is that you may not want to chose NFA or CFTC USA Regulators, who have these very strict rules:
- Max Commodity Trading Leverage 50:1
- First In First Out FIFO Trading (open trades in 123 order, must close then in 123 trading order, not 321, not 312, not 213 order)
- No Stop Loss Commodity Trading Order Setting
It is for the above rule that most traders won't open an account with USA brokers, most traders who traded with USA commodity brokers closed their trading accounts and transferred them overseas with the introduction of this rules, this is around the year 2010.
In addition these regulators, will take to court any commodity trading financial firm which opens an account for America citizens, this is why no commodities broker will open an account for an American, Only those commodity brokers in USA can open a commodity Account For An American Citizen. Only brokers accepting America clients are only those brokers based in USA.
