Comparing Commission Rates
With the electronic age, commission rates on trading commodities have come down considerably. In the 1990’s, many commodity brokers were charging in excess of $150 per round-turn. Since about 2005, full-service rates have typically ranged between $30 and $80. Remember, commission rates on futures contracts are paid per contract, not per order.Make sure that you are comparing commissions based on a round-turn rate. A round-turn rate covers both the buy and sell sides of a trade. A half-turn rate only covers the buy or sell side of a trade.
The trading style of a full-service commodity broker will play a major part in the commission you will pay. If he wants to make trade recommendations every day, you should expect a commission rate somewhere near the low end of the range. If he only plans on making one trade every month or two, you should expect commission rates on the higher end.
A commodity broker has to get paid, but make sure you are paying for solid recommendations and not for the sake of lining his pockets. It is highly unlikely your account will survive if you are a very active trader paying $80 per round-turn in commissions.
Negotiating Commission Rates
Many new traders will choose a commodity broker based on commission rates. That is not always the best logic to follow. The main reasons for choosing a commodity broker should be whether you think the broker can make you money and you feel he will be a good partner to help you achieve you trading objectives in the futures markets.A commodity brokerage firm generally pays about $10 - $15 to clear their trades with their FCM. Your commodity broker normally gets paid about 50% of the commissions he charges his clients. Often, the clearing fee is subtracted off the top of their payout. So, if you expect to get a $30 commission rate from your broker, he is probably making less than $10 per trade.
You have to be reasonable when you hire a full-service commodity broker. You cannot expect him to devote half his day to someone who only makes one trade a month that puts $20 in his pocket. However, if you are an active trader who pays a substantial amount in commissions, make sure you get the needed time devoted to your account.
Most commodity brokers are willing to negotiate commission rates, especially for their established clients. If you are not able to negotiate lower rates when you open an account, you may be able to negotiate later in the relationship with your broker.
If you have not been making money with your commodity broker, you certainly deserve a break in commissions. However, if you are consistently losing money with your broker, you may want to look elsewhere.
You may not want to rock the boat if your broker is making you a good return on your investment. Good commodity brokers are hard to find. I would rather pay more in commissions and consistently make money with a broker instead of take a chance on an unproven commodity broker.
