10 Questions to Ask a Futures Broker

Essential due diligence before you start trading.

By Tamarah Webb

December 28, 2017 • Reprints

Trading is hard, even for grizzled veterans, so anyone looking to trade needs to do their due diligence, especially when selecting their broker.

In the world of electronic trading, traders can trade at very low rates depending on how much help they need. But new traders need to be honest with themselves in selecting a broker. You may not know as much as you think, so it is good to have someone to hold your hand even if it means paying a higher commission.

Once you have decided upon a firm, you should then decide on an individual broker. Here are 10 questions that a new futures trader or investor should ask when selecting a broker.

1. What type of registration do you have?
“We’ve seen in recent years a lot of fraudulent companies that are based overseas, out of the reach of the U.S. regulators, that have turned out to not be on the board,” says Phil Flynn, senior energy analyst at The PRICE Futures Group. When you talk to a broker, you want to find out if they are registered in the United States. If a potential broker is registered, they will be registered with the Commodity Futures Trading Commission (CFTC) after becoming a member of National Futures Exchange (NFA).

altYou should visit www.NFA.Futures.org to access their BASIC (Background Affiliation Status Information Center) database. The database contains CFTC registration and NFA membership information. In addition to registration status, be sure to look out for any disciplinary history. Make sure you examine the company’s history and age of business. Do they, or other brokers who work for that firm, have any disciplinary history you as a potential customer should know about?

2. Can we build a personal relationship?
When selecting a broker, remember that you are developing a long-term relationship. Make sure that person is somebody that you can get along with. Before you open an account with your broker, you need to know that you can work with him or her. See what type of research and experience the broker has to offer; how many years of experience he or she has and find out if the broker’s personality is one you can work with on a daily basis.


“It’s important to have an open relationship with your broker. You will appreciate a broker you can relate to and talk to on a regular basis,” Flynn says. There may be a large amount of material you are required to sign — don’t be afraid to ask questions. According to Heritage West Financial, Inc. you should carefully read and understand all material before signing anything. Never exaggerate your financial statistics such as net worth or the amount of risk capital you have. Certain trades and markets can be utilized relatively cheaply, but if you are undercapitalized for a particular strategy, it makes it nearly impossible to be successful in the long run.

Be very cautious and avoid brokers who suggest being less than truthful on your account forms. It is for your protection that commodity laws require these statements. If a broker encourages you to exaggerate to get an account open, that broker is likely churning accounts and not interested in your long-term success.

3. Do you have a working knowledge of the fundamentals and technicals of the markets I wish to trade?
A good broker does not pressure clients to trade. There are a lot of good brokers out there but you need to pick a broker who fits your type of trading style — find somebody you can work with. If you’re going to work with a full-service broker, find one who can provide a favorable online trading platform. There’s a lot of attraction for some people to trade with electronic platform trading companies because there’s very low commission, but at the same time there are a lot of traders that probably wouldn’t do as well in that environment because of margin requirements and restrictions. Flynn says, “Sometimes there are restrictions on going short option trading. So in those cases you might be better off with a kind of blue-chip service firm.”

If you need help, either in learning the particulars of the market or execution, it’s best to find a broker that can hold your hand. Once you become more sophisticated and comfortable you can always take more control of your trading.

4. What kind of customer service do you offer?
It’s not like a stock account. Once you have money in the futures account it’s not set-it-and-forget-it, you should watch your statement everyday. “It’s important to monitor this and never put on a position and go on vacation,” says Flynn. Often there can be mistakes made. “There are times where costumers forget they placed orders and it can be very expense.” It should be the overall value of service a broker offers as it pertains to the needs of a particular trader that a trader should focus on when choosing a broker.

Pick a broker who matches your style. If a broker has several high net worth customers, he may not be very attentive to your smaller account. Make sure you are on the same page.

5. What about news reports, services and charts? What’s included and what will cost me extra?
As previously reported by Modern Trader magazine, in this area you should start by finding out what kind of extras you will need in terms of data and services. Does this broker’s system offer all of the quotes, charts, news and research you need? Are there live market data and capabilities offered? Find out what trading tools are available. Some brokers charge extra for real-time quotes and some offer a limited quantity of real-time quotes included in a trading system package, and then charge an amount for extra quotes used. Some brokers may also charge for charts, which most traders view as pertinent to trading.

You will want as many tools as you can get. Even if you plan to trade from a fundamental perspective, it is mportant to know the technicals because other traders trade off of them and you’ll need to know at what levels technical traders are likely to be getting into or out of a market.


6. Are there account requirements?
Some brokers have minimum requirements on account sizes and different pricing structures for different accounts and you should find out which suits you best and which you are most comfortable with. According to Heritage West you should have received this information in the account opening packet sent to you prior to your meeting. If it was not included, you need to know this up front, in case the broker or firm requires a higher initial amount to start than you are willing to put into a trading account. During this discussion you should also talk about the firm’s margin requirements and call procedures. Firms can have different policies regarding margin.

7. What is your track record like?
A broker’s reputation is important because it is one way of measuring his stability. Is he open to new trading ideas and techniques? Especially if he handles many clients, make sure he has availability for face-to-face encounters. Are most of the broker’s clients commercial hedgers, speculators or a mix of both? Most of these questions will be answered if you check his references.

Question the broker about their failures as well as their successes. They will have both so it is important that they can be honest about this.

8. What is your execution and technology?
According to TradingSim.com, execution of orders plays an important role and can be one of the few things that can be the difference between a winning and a losing trade. While most day traders tend to focus on fees, margin and leverage (which are important), execution of the trades should not be underestimated. No matter how good your trading strategy may be, slippage can eat away into your profits and can add up to a significant amount over a period of time.


Besides execution, traders should also ensure that the futures brokerage offers you flexibility in terms of placing and modifying orders as well. Rick Tomsic, founder of Tradovate Holdings, LLC says you should easily be able to log in to check quotes and place trades on your phone or tablet. Does using the platform feel as easy as hailing an Uber ride or does it feel more like using a dial-up modem? Investors should be able to “take a look under the hood” in simulation to see if the platform has a clear and visible layout of key trading functions, and is not stuffed to the gills with obscure bells and whistles.

9. Do you offer educational seminars?
A trader should ask about educational offerings. If you’re going to start trading, you’ve obviously done a good amount of research and homework on the markets, but as a novice you’ll still want to learn more. Ask about simulated trading and the extent of education offered on the platform you’ll be using.   

10. What are the commission fees?
Lastly, ask the broker about commission charges. As with most businesses, commissions vary with the amount of service. Also, make sure you understand all additional fees for value-added services.

While it sounds like a cliché, trading is a marathon and not a sprint. We are not talking about the duration of your trades, but the process of educating yourself. While it is natural to be excited and want to dive in, the more you know before you start putting money on the line, the greater your chances of success.