What is in a Broker?

So you are ready to pick a broker. Beware! There is a wide range of brokers out there. Some of them are very, very good. Some of them are fair. Some are not fair. You need to interview and test a broker; the time to start is today. You might want to check out our Looking for a Broker page. On this page we are building a database of brokers. If you have not already read about the difference between a full service and discount broker then visit Looking for a Broker now. You will need to understand this difference to understand what I am about to tell you about picking a broker.

When you first start trading commodities, you will probably want to get a good full service broker who will help teach you the basics. The extra money that you pay in commission could possibly, and usually does, make up for the times that you may make an error in placing an order. A good full service broker will know the types of trades you usually make, and if he or she notices that an order you are placing is not your usual order, then they will verify it with you. This alone could save you thousands of dollars. Imagine the following scenario.

You have been watching Live Cattle go higher than it has ever been before. It is making its 1-2-3 top formation, and you are placing your order to control a contract. You think the price is going to go down, so you decide that you want to short a contract. When you call your broker however, you say, "I would like to buy a contract of May Live Cattle at 100 stop." An order to buy a contract puts you long a contract not short though. You did not realize that you really wanted to sell a contract. A discount broker is one that just takes your order and tries to get you the best possible fill price. He or she does not usually think about the order you are placing. He or she expects you to know what you are doing. If you had made that order with a full service broker that you have discussed your trading strategy with, then he or she would probably have said to you, "this chart just made a 1-2-3 top, are you sure you do not want to sell one contract?" The error would have been corrected before you lost any money. Believe it or not, this happens all the time. A good broker has saved me from making a stupid order more than once. There is something else that a full service broker provides that a discount broker usually does not.