Futures Brokers?

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Feb 21, 2007 6:15 pm

Are there any commodity traders out there? What have your experiences been in this FA dominated industry?

Feb 22, 2007 5:37 pm
infinity:

Are there any commodity traders out there? What have your experiences been in this FA dominated industry?



Most firms will want to encourage their clients to get into a Managed Futures fund.  Trading commodities is not a good idea for amateurs.

Setting up your business as a transaction based commodities broker is also not a good idea, mostly because all of your clients will eventually blow up and you'll spend the majority of your time trying to find new clients...who will also blow up.

Being a commodities broker is sort of like being an Oncologist.  All of your patients die.

Feb 23, 2007 1:16 am

I have a buddy who was a successful commodity trader.  However, a few years ago he realized that he was spending 10% of his time selling managed futures, but making more than 50% of his income from that side.


Now he makes great money (6% average trail!), enough that he can still play around with trading commodities for the clients he likes working with. 


He just shakes his head when I get excited about moving a big account to a 1% fee.  We live in different worlds. 

Feb 23, 2007 8:14 am
EDJ4now:

I have a buddy who was a successful commodity trader.  However, a few years ago he realized that he was spending 10% of his time selling managed futures, but making more than 50% of his income from that side.


Now he makes great money (6% average trail!), enough that he can still play around with trading commodities for the clients he likes working with. 


He just shakes his head when I get excited about moving a big account to a 1% fee.  We live in different worlds. 



Why can't you put your clients into Managed Futures?  All you need is a Series 31, and that exam requires about one hour of study, and no more than 15 minutes to actually take it and complete it.

Feb 24, 2007 10:57 pm

I usually look at investopedia for licensing requirements. I have a 7 and 66 and would like to just go for the 3 rather than 31. Do I need my firms sponsorship to get a 3? (Investopedia doesn't say one way or the other and I see conflicts on the net; some say yes some no.) Might be leaving and current firm doesn't do futures. Would like to get it out of the way beforehand. Btw, any notice E*Trade is also offering futures now? I know a guy at a wire who does a lot since only way to still get a big transactional rip.

Feb 25, 2007 2:49 pm
xbanker:

I know a guy at a wire who does a lot since only way to still get a big transactional rip.



::rolls eyes::

That sorta sums up everything that is wrong with the industry in just a few words.

There is nothing wrong with making money, not even making a LOT of money.  Ultimately, though, the clients interests must be given first priority.  They must be treated fairly.

Feb 25, 2007 8:36 pm
ManagedMoney:


Being a commodities broker is sort of like being an Oncologist.  All of your patients die.





Very easy to get exposed to "suitability" issues, since it is damn hard to find anyone for whom active futures trading is suitable.





Even for something like a commodities index total return ETN, it is
still chancy. The underlying indexs of the iPath ETN's GSCI and DJ/AIG
don't adapt to contango/backwardation like the DB indexes from
powershares do. The GSCI index itself is dumb b/c it is 75%+ oil
related.



Trouble is, IIRC, the exchange traded DB Powershares spit out K-1 forms (although I imagine the K-1 form is pretty simple).



Remember that each futures position is offset with an opposing position
and therefore the futures market as a whole is a zero-sum game. Thus the
average return in futures trading across the whole market is zero (less
trading costs etc.)


Feb 25, 2007 10:43 pm
AllREIT:
ManagedMoney:


Being a commodities broker is sort of like being an Oncologist.  All of your patients die.





Very easy to get exposed to "suitability" issues, since it is damn hard to find anyone for whom active futures trading is suitable.





Even for something like a commodities index total return ETN, it is
still chancy. The underlying indexs of the iPath ETN's GSCI and DJ/AIG
don't adapt to contango/backwardation like the DB indexes from
powershares do. The GSCI index itself is dumb b/c it is 75%+ oil
related.



Trouble is, IIRC, the exchange traded DB Powershares spit out K-1 forms (although I imagine the K-1 form is pretty simple).



Remember that each futures position is offset with an opposing position
and therefore the futures market as a whole is a zero-sum game. Thus the
average return in futures trading across the whole market is zero (less
trading costs etc.)




First of all, futures trading isn't really a zero sum game because everyone has to pay commissions.

Secondly, what most people don't understand about futures trading is that while the exchanges set margin limitations (for maximum margin used) no one is REQUIRED to use all of that leverage.  Lots of people trade futures with no leverage at all, and in those cases, futures is a hell of a lot less risky than trading individual stocks.

Feb 25, 2007 10:44 pm
xbanker:

I usually look at investopedia for licensing requirements. I have a 7 and 66 and would like to just go for the 3 rather than 31. Do I need my firms sponsorship to get a 3? (Investopedia doesn't say one way or the other and I see conflicts on the net; some say yes some no.) Might be leaving and current firm doesn't do futures. Would like to get it out of the way beforehand. Btw, any notice E*Trade is also offering futures now? I know a guy at a wire who does a lot since only way to still get a big transactional rip.



You have to be sponsored to take the Series 3.

Feb 26, 2007 1:54 am
ManagedMoney:


First of all, futures trading isn't really a zero sum game because everyone has to pay commissions.





That's what the words "less trading costs" were about.