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How to Open a Commodities Trading Account

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Opening an account to trade commodities is probably easier than you think, but it is a major financial transaction and you can expect to fill out some paperwork and wait a couple days before you can begin trading commodities.

The first thing you have to do is decide on a commodity brokerage firm, which will hold your account and execute your trades. You will find full service brokers, discount online brokers and a mix of the two. You have to determine the best fit based on your needs - whether you need a full service broker to help recommend trades or you want an online futures broker where you call the shots.

These articles provide some good information on finding a broker:

Searching For A Commodity Broker

Online Commodity Broker Or Full Service Commodity Broker?

Benefits of Trading Futures Online

I would suggest looking at about three commodity brokers before you decide on one. For online trading, I would thoroughly examine their online trading platforms before I open an account. Most brokers provide a demo of their trading platforms. Also, check all the fees associated with an account. This includes platforms fees, commission rates, clearing fees and any other account fees.

If you plan on going the full service route, then the commodity broker you will be working with is very important. Some are much better than others. Most people rely on brokers to educate them on the markets or to make trading recommendations. If your broker is a bad trader, you could lose your money faster than you think. You also want to work with someone you like and you have to make sure they are able to provide you with the service you need.

Here are some articles that make help with deciding on a broker:

Avoid the High Pressure Sales Pitch From a Commodity Broker

Commodity Brokers and Commission Rates

Once you decide on a broker, they will provide you with account forms and disclosure documents to read, fill-out and sign. They often provide these forms online, so you can get started with the paperwork immediately. Some brokers allow you to send the completed paperwork online, but you will probably have mail a hard copy of your signature. You can also expect to provide some form(s) of ID to verify your identity matching the paperwork.

The paperwork will include questions on your financial situation like your annual income and net worth. You will also be asked questions on your investment experience from stock to commodities and options. Then, you have to acknowledge that you have read and you understand the risks involved in trading commodities. You can expect to sign an agreement where you will use arbitration to resolve any customer disputes. I personally don’t have a problem with arbitration and I think it works well for everyone.

Even though you are opening an investment account, you still have to go through an approval process. Trading commodity futures is risky for you, as well as the brokerage firm. You can lose more than your initial investment when you trade futures contracts. Therefore, the broker wants to make sure you are good for the money if you ever have a deficit account and they want to make sure you are suited to trade commodities.

You don’t have to prove you are an expert trader, rather the brokerage firm wants to make sure this is risk capital and you can afford to lose it. Your liquid net worth, age, income, credit rating and trading experience are all considered. Most people are approved to open a commodities account, but not everyone.

The commodity broker will let you know they accepted your paperwork and it might take a couple days before your account is approved. They will also contact you if they need any further information. Once your account is approved, you will receive notification and information like your account number, password and instructions. You will have to fund your account after you receive this information before you can begin trading. Wiring money is usually the quickest route. Cashiers checks are also good, but a personal check will take some time to clear before you can begin trading.

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