Opening a commodity trading account is easier than you might expect, but it is considered a significant task, and you can expect to fill out some forms and wait a few days before you can start trading commodities.
Choosing a Company
When opening an account, the first thing to do is to choose a commodity brokerage firm. The firm will hold your account and execute your trades. There are many full-service brokers and discount online brokers to choose from. You should determine the best one based on your needs. A full-service broker will assist you by recommending trades, while you will be on your own with an online futures broker.
It is advisable to choose three commodity brokers to interview before deciding on the best broker that fits your needs. For online trading, carefully check their online trading platforms before opening an account. Most brokers offer a demo of their trading platforms for potential clients. Also, check all fees associated with the account. Fees may include platform fees, commission rates, settlement fees, and any other account fees.
Full-Service Brokerage
If you plan to go the full-service brokerage route, the specific commodity broker you will deal with is a critical issue. Like any other business, some brokers are better than others. Most people rely on brokers to educate them about the markets or to provide trading recommendations. If your broker is not a successful trader, you could lose your money very quickly. It is always important to choose a broker who is compatible with you and provides the level of service you need.
Once you decide on your broker, the professional will present you with account forms and disclosure documents to read, fill out, and sign. These forms are often available online, so you can start the paperwork immediately. Some brokers allow you to submit completed paperwork online, but you may still need to send a signed paper copy. You will also be required to provide some forms of identification to verify that your identity matches the forms.
The forms will include questions about your financial status, such as your annual income and net worth. You will also be asked to answer questions about your investment experience with stocks, commodities, and options. Finally, you must acknowledge that you have read and understood all the risks associated with trading commodities. The agreement generally stipulates an understanding for arbitration to resolve any disputes. Arbitration tends to avoid high legal fees.
The Process
The process of opening an investment account requires an approval process. Trading commodity futures is risky for both you and the brokerage firm. A customer can lose more than their initial investment when trading futures. Therefore, any broker will ensure that any client can cover any shortfall in the account. Additionally, brokers are required by regulators to ensure that their clients are qualified to trade commodities.
A person does not have to prove to be an expert trader; the brokerage firm must ensure that the risks associated with trading are appropriate for the financial capabilities. The brokerage will consider your liquid net worth, age, income, credit rating, and trading experience. Most people are approved for opening commodity accounts, but in some cases, a brokerage firm may reject a client’s account.
The commodity broker will inform you that they have accepted your paperwork. It usually takes a few days before the account is approved. The brokerage will contact you if they need further information before making a final decision. Once your account is approved, you will receive a notification and information such as your account number and password, along with additional instructions. You will be required to fund your account after receiving this information to start trading. Wiring money is typically the fastest method. A cashier’s check is also acceptable, but a personal check might take some time to verify, delaying the process before you can start trading.
Source:
https://www.thebalancemoney.com/how-to-open-a-commodities-trading-account-809156
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