How to Become a Licensed Commodity Broker

Introduction

You are interested in knowing the answers to two questions about how to become a commodity broker: how much money can you make? Will you enjoy working in the futures industry? Commodity brokers lead a very good life. Experienced brokers with less than three years have earned a base salary ranging from $100,000 to $150,000 in 2013. Those with five or more years of experience have achieved an average base salary ranging from $200,000 to $350,000, but you must be willing to work hard and dedicate time and effort to become good at it, and you need to pass a challenging licensing process.

The Basics

You will enjoy working as a commodity broker if you have a strong interest in trading commodities and possess sales skills. Sales are an important consideration as you will need to open accounts and build a client portfolio.

How to Become a Licensed Commodity Broker

Every commodity broker must be licensed and registered with the National Futures Association (NFA) as a “associated person.” To obtain this license, the applicant must pass a test called the Series 3 exam. The exam blueprint can be found on the National Futures Association (NFA) website. The exam contains a section that tests general knowledge of the futures markets and another section covering rules and regulations. Do not take this part of the exam lightly. It deals with “treating customers fairly.” If you are already working at a brokerage firm, you should be able to provide the educational materials. There are many online educational courses available. Whatever source you use, make sure it is current. Rules and regulations change frequently. The applicant is also required to fill out Form 8-R with the National Futures Association (NFA). This form covers the applicant’s employment history for the past ten years and residency history for the past five years. Any criminal records and any disciplinary actions taken in other financial professions must be reported. The applicant must then have their fingerprints taken, usually at a local police station, and the fingerprints along with Form 8-R are sent to the Federal Bureau of Investigation (FBI) for a background check before approval for a temporary license is granted.

Where to Work as a Commodity Broker

Before you begin the process of becoming a licensed commodity broker, you should already be working in the field. Most stock brokerage firms do not trade commodities, so you should look for a firm that specializes in commodities. These firms are usually called introducing brokers or IBs. You can also work directly for an FCM, or Futures Commission Merchant. Most FCMs are based in Chicago or New York.

Starting Work

Working as a commodity broker combines sales skills with the analytical ability to research commodity markets and trading skills. Many commodity brokerage firms have research departments that perform a lot of analysis and provide trading recommendations. This means that sales skills are the most important trait.

Bull and Bear

The commodity market is a high-cycle business. During bullish markets, there is a lot of interest from an expanding tribe of investors and job opportunities for new brokers entering the business. During bear markets, business contracts. From 2003 to 2012, there was an active bullish market in commodities, and prices gradually rose, attracting a wave of interest from investors. Commodities moved from alternative investments to mainstream. Then, from 2012 to early 2016, bear market conditions caused a decline in interest in commodities and decreased opportunities for brokers as prices fell. Later, volatility increased in many commodity markets, leading to increased trading volumes.

Source:
https://www.thebalancemoney.com/how-to-become-a-commodity-broker-809002