A commodity broker is a company or individual that executes orders to buy or sell commodity contracts on behalf of clients and charges them a commission. A company or individual acting on its own behalf is called a trader. Commodity contracts include futures, options and similar financial derivatives. Clients who trade commodity contracts are either hedgers who use derivatives markets to manage risk, or speculators who are willing to take that risk from hedgers in the hope of making a profit. [1] Commodity brokers and traders are engaged in commodity trading on a current, ”spot” or future basis. Commodities are usually agricultural, mineral or other commodities and financial futures contracts traded on a commodity exchange. The products are generally substitutable. This means that the buyer is unlikely to distinguish between one unit of the product and another. Contracts for agricultural products such as wheat, corn and soybeans are drafted with a certain quality and other specifications in the form of standardized contracts that indicate the quantity and quality of the product. Commodity Trading Advisor (CTA): a company or individual who advises others on the negotiation of commodity contracts. They advise commodity pools and offer managed term accounts. Like an IB, a CTA does not hold client funds for margin; they are held in an FCM. CTAs exercise discretion over their clients` accounts, which means that they have the power of attorney to negotiate the client`s account on their behalf in accordance with the client`s trading objectives.
A CTA is usually the product that corresponds to a financial advisor or mutual fund manager. [7] Companies and individuals often referred to collectively as commodity brokers include: Ground broker/trader: a person who trades commodity contracts on the floor of a commodity exchange. When executing trades on behalf of a client for a commission, he acts in the role of a broker. When he acts in the name of his own invoice or on behalf of his employer, he acts in the role of a merchant. Ground trading is managed in the pits of a commodity exchange through an open outcry. A ground broker is different from a ”ground trader”, he or she also works on the floor of the exchange, trading as a client on his or her own account. [4] Commodity prices are quoted on any change, whether spot or in the future on an electronic board. Future prices will be indicated on the basis of the date of delivery of the contracted goods. Prices are shown as they occur based on transactions in the trading pits at certain times. Transactions are only made by members. There has been a trend in commodity futures markets to move away from traditional commodities. As the type and number of commodity futures have increased, brokers have settled higher and higher volumes.
Product Pool Operator (CPO): A company or individual that operates commodity pools advised by a CTA. A commodity pool is essentially the commodity equivalent of a mutual fund. [8] Registered Commodity Representative (RCR)/Associate Person (AP): employee, partner or officer of an FCM, IB, CTA or CPO, duly registered and authorized to carry on the activities of an FCM, IB, CTA or CPO. This is the goods that correspond to a registered representative. [9] In the past, commodity brokers traded grain and livestock futures. Today, commodity brokers trade a variety of financial derivatives based not only on grains and livestock, but also on derivatives based on food/soft products, metals, energy, stock indices, stocks, bonds, currencies and an ever-growing list of other underlying assets. Since the 1980s, the majority of commodity contracts traded have been financial derivatives with financial underlyings such as stock indices and currencies. [2] After the introduction of the Volcker Rule in 2014, the number of commodity trading houses and individual brokers decreased. [3] In 1997, 2,044 establishments operated under this industry classification, most of which were commodity contract brokers. The industry employed 17,763 people and generated $5.3 billion. This main group includes entities engaged in the subscription, purchase, sale or brokerage of securities and other financial contracts for their own account or for the account of others; and stock exchanges, clearing houses and other services related to the exchange of securities and commodities.
Commodity brokers can trade commodities on various exchanges that specialize in trading a particular type of commodity. Popular commodity exchanges include the New York Mercantile Exchange (NYMEX), which trades a variety of commodities, the Chicago Board of Trade (CBOT), which trades wheat, rice, soybeans, oats, corn, silver, gold and ethanol, and the Intercontinental Exchange (ICE), which trades crude oil, electricity, and natural gas. Others include cmE Group, the Kansas City Board of Trade, the London International Financial Futures and Options Exchange and the New York Board of Trade. Commodity exchanges are member-owned organizations to bring buyers and sellers closer together. Transactions carried out by these parties may be carried out in cash, when the goods are sold on delivery and immediate delivery, or in the future when the buyer is entitled to purchase a good at a later date at a fixed price. There are a number of these exchanges across the country, all of which are overseen by the federal government under the Commodity Exchange Act, which is administered by the Commodity Futures Trading Commission. Introducing Broker (IB): A company or individual who requests or accepts orders for commodity contracts traded on an exchange. .
