As with most other professions, you probably want to know the answers for two questions:
- How much money can you make?
- Will you enjoy working in the futures industry?
There is no doubt you can make a good living as a commodity broker, but you have to be good at it just like everything else. You will most likely enjoy working as a commodity broker if you have a strong interest in trading commodities and you are a somewhat decent salesperson. Yes, sales are involved since you have to open accounts and build a book of business.
Process for Becoming a Licensed Commodity BrokerThis profession requires every commodity broker to be licensed and registered with the National Futures Association (NFA). The designation you will be seeking is an Associated Person.
You will be required to take and pass the Series 3 examination. Do not confuse this with the Series 7, which is used for Stock Brokers. The exam will have two parts. The first consists of questions that will test you on general futures market knowledge, hedging, futures contracts, orders, options and most everything involved in trading. The outline from for the test can be found at the NFA.
The second part of the test will cover rules and regulations. Do not take this part of the test lightly. It deals with the “treating the customer properly” issues. Your brokerage firm should have study manuals for you and there are several online study courses available.
Next, you will need to fill out an 8-R form with the NFA. This basically gives them your life history. It includes your employment history for the last 10 years and your residential history for the last 5 years. It also covers your criminal history and well as any disciplinary actions if you have been licensed in other financial professions.
The reason for the in-depth profile is that you will go through a background check with the FBI before you are given a temporary license. You will also need to get fingerprinted, usually at your local police office, and the card will be sent to the NFA along with your 8-R.
Where to Work as a Commodity BrokerNow, before you start this whole process, you need to have a place to work. Most stock brokerage firms do not trade commodities, so you should look for a firm that specializes in commodities. These are typically called Introducing Brokers or just IBs.
You can also work directly for an FCM, however most of them are located in Chicago or New York. As far as the number of firms, there are about 1,500 Introducing Brokers and about 150 FCMs.
Being a commodity broker is a combination of being a salesperson with an analytical ability to research commodity markets as well as trade commodities. Many commodity brokerage firms have research departments that do a lot of the analysis for you and make trade recommendations.
Chicago is definitely the place to be for trading commodities. It is home to the CME Group - a merger between the CBOT and CME. It may be the best place to learn and get a start. Most other major cities will have a handful of commodity brokerage firms. You probably will have to look at a firm that specializes in commodities as the large wirehouses like Merrill and Morgan Stanley most likely will not hire you exclusively for trading commodities.
This can be a very rewarding profession and many who last more than a couple years are hooked and stay in the industry for a lifetime.
Good luck and study hard for the test!