Commodity broker

A commodity broker is a firm or individual who executes orders to buy or sell commodity contracts on behalf of clients and charges them a commission. A firm or individual who trades for his own account is called a trader. Commodity contracts include futures, options, and similar financial derivatives. Clients who trade commodity contracts are either hedgers using the derivatives markets to manage risk, or speculators who are willing to assume that risk from hedgers in hopes of a profit.

While historically commodity brokers traded grain and livestock futures contracts, today commodity brokers trade a wide variety of financial derivatives based on not only grain and livestock, but also derivatives based on foods/softs, metals, energy, , equities, bonds, currencies, and an ever growing list of other underlying assets. Ever since the 1980s, the majority of commodity contracts traded are financial derivatives with financial underlying assets such as stock indexes and currencies.

Firms and individuals who are often collectively called commodity brokers include:

Floor Broker/Trader: an individual who trades commodity contracts on the floor of a commodities exchange. When executing trades on behalf of a client in exchange for a commission he is acting in the role of a broker. When trading on behalf of his own account, or for the account of his employer, he is acting in the role of a trader. Floor trading is conducted in the pits of a commodity exchange via open outcry.

Futures Commission Merchant (FCM): a firm or individual that solicits or accepts orders for commodity contracts traded on an exchange and holds client funds to margin, similar to a securities broker-dealer. Most individual traders do not work directly with a FCM, but rather through an IB or CTA.

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