By Chuck Kowalski. Commodities Expert
Opening a commodity brokerage firm might seem like a daunting task, but knowing the proper steps and requirements beforehand can save you a lot of time and headaches.
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Chicago is the hub for commodity brokerage firms, while Florida, Texas, California and New York are other popular locations for Introducing Brokers.
One of the most important steps in the initial process of opening a firm is to enter an agreement with a Futures Commission Merchant (FCM). There must be a signed agreement between an Introducing Broker and an FCM before you can register and do business with the public. An FCM will execute and clear your trades, handle client funds, provide back office support and in most cases they will guarantee your firm. Therefore, they will also be selective when it comes to entering an agreement with an Introducing Broker.
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IB Business Plan
A business plan is crucial to any startup business. You will need to have an office opened and ready to conduct business. Now, how do you plan on getting clients so you can enough revenue to sustain the business? That is one of the greatest keys to success in this business. You should know in detail where and how you plan on getting new customers and raising equity. The common routes are advertising, seminars, friends
Before you get that first client, you need to be skilled in trading the commodity futures markets. Some brokers concentrate on one market, but you will probably trade every market if you are in the business long enough. Some clients will make their own trading decisions, while others will solely rely on your advice. The more skilled you are at successfully trading commodities, the more likely you are to retain clients and grow your brokerage business. If you are a perpetual loser at trading commodities and your clients rely on your advice, you will be fighting a serious uphill battle to succeed.
To summarize the process of opening an Introducing Commodity Brokerage firms, you will need to have passed the Series 3 Exam and attained all the proper registrations from the NFA. You will also need to choose and negotiate an agreement with a FCM to clear your trades and handle the accounting and client statements. Put together a good business plan on projected costs and revenues and how you plan on opening new accounts. If you plan on making trading recommendations for your clients. make sure you have a solid trading plan and previous success in trading before you venture into managing money for other people.
Here are two excellent sources on opening and running a commodity brokerage firm. They are must reads if you want to venture into this business.