You probably want to know the answers to two questions about becoming a commodities broker:
- How much money can you make?
- Will you enjoy working in the futures industry?
Commodities brokers make a very good living. Brokers with less than three years of experience made a base salary of between $100,000 and $150,000 as of 2013. Those with five or more years of experience made an average base salary of between $200,00 and $350,000, but you have to be willing to put in the time and effort to become good at it, and you need to pass a tough licensing application process.
Key Takeaways
- You will enjoy working as a commodity broker if you have a strong interest in trading commodities and you have sales skills.
- Every commodity broker must be licensed and registered with the National Futures Association (NFA) as an "associated person." You must pass a test called the Series 3 examination.
- Before starting the process to become a licensed commodities broker, you must already be working in the field.
- Working as a commodity broker combines sales skills with the analytical ability to research commodity markets and the skill to trade commodities.
The Basics
You will enjoy working as a commodity broker if you have a strong interest in trading commodities and you have sales skills. Sales are an important considerationas you will have to open accounts and build a book of business.
Commodities brokers operate in a more specialized field than stockbrokers or registered securities representatives, and there are far fewer of them.
Becoming a Licensed Commodity Broker
Every commodity broker must be licensed and registered with the National Futures Association (NFA) as an "associated person."
To get that license, the applicant must pass a test called the Series 3 examination. The outline form for the test can be found on the NFAwebsite.
The exam has one section that tests general futures market knowledge and a second covering the rules and regulations. Do not take this part of the test lightly. It deals with “treating the customer properly” issues.
If you're already working for a brokerage firm, it should be able to provide study manuals. There are several online study courses available. Whatever source you use, make sure it's up to date. The rules and regulations change frequently.
An applicant also is required to fill out an 8-R form with the NFA. This form covers the applicant's employment history for the last 10 years and residential history for the last five years. Any criminal history must be reported as well as any disciplinary actions imposed in other financial professions.
Then the applicant has to get fingerprinted, usually at a local police station, and the prints and the 8-R form are sent to the FBI for a background check before the applicant can be approved for a temporary license.
Where to Work as a Commodity Broker
Before starting the process to become a licensed commodities broker, the applicant must already be working in the field. 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, or Futures Commission Merchant. Most FCMs are located in Chicago or New York.
Getting to Work
Working as a commodity broker combines sales skills with the analytical ability to research commodity markets and the skill to trade commodities. Many commodity brokerage firms have research departments that do much of the analysis and make trade recommendations. That means sales skills are the most important attribute.
Chicago is the place to be for trading commodities. It is home to the CME Group, one of the biggest commodities exchanges in the world, among others. Most other major cities have only a handful of commodity brokerage firms.
You'll probably have to look for a firm that specializes in commodities. The big financial companies like Morgan Stanley don't often hire candidates exclusively for trading commodities.
Bull and Bear
The commodities market is a highly cyclical business. During bull markets there tend to be lots of interest from an ever-expanding investor community and jobs available for new brokers breaking into the business. During bear markets, the business contracts.
From 2003 to 2012, there was an active bull market in commodities and prices moved progressively higher, attracting a wave of investor interest. Commodities moved from alternative investment vehicles into the mainstream.
Then, from 2012 into early 2016, bear market conditions caused interest in commodities to decline, and opportunities for brokers decreased along with prices. Later still, increased volatility in many commodities markets resulted in strong volumes of buying and selling.
FAQs
How to Get a Commodity Broker License. To work as a commodity broker, you are required to be certified by the National Futures Association (NFA). The NFA oversees licensing for stockbrokers and commodity brokers. Typically, you study for the licensing exam while working in an entry-level position or internship.
What makes a good commodity broker? ›
Good commodity brokers: understand farming and what a farm manager is trying to accomplish by hedging. are knowledgeable about the markets without being overwhelming or overbearing. keep their clients informed about the market and the conditions of their accounts.
Why do you want to work in commodities trading? ›
If you're passionate about the world of commodities and are looking for a career that's both challenging and rewarding (once clicked), consider physical commodity trading. With the right skills and mindset, you could be a part of this dynamic industry and help make a difference in the world."
Is it hard to become a commodity trader? ›
One does not become a commodity trader overnight. To gain experience in this field, you may have to spend months or years learning the trade. Once you have the skills, you can consider working as an individual commodity trader or applying for a related job in a trading company dealing with such assets.
Is the series 3 exam difficult? ›
Administered by the Financial Industry Regulatory Authority (FINRA), the exam covers such complex topics as futures contracts, hedging, options, margin requirements, and myriad regulatory rules. Series 3 is a challenging, two-part, 150-minute exam with 20 multiple-choice questions, requiring rigorous exam prep.
How do I start a career in commodities? ›
Many global corporations and commodity trading firms offer internships and traineeships. Using an internship as a springboard into the industry is one of the most common routes for traders to advance to junior trading positions, and then eventually to more senior roles.
What is a commodity broker's salary? ›
Base Pay. $68K - $117K/yr. Additional Pay. $73K - $136K/yr.
Do commodities brokers make a lot of money? ›
A Commodity Broker in your area makes on average $108,165 per year, or $2 (0.014%) more than the national average annual salary of $104,999. ranks number 1 out of 50 states nationwide for Commodity Broker salaries.
Which commodity is most profitable? ›
Crude oil ranks as one of the most traded commodities in the world. Commodity traders who had taken long positions on crude oil last year made a lot of money. Crude oil prices decreased in 2020 as a result of COVID-19 and the consequent global lockdowns. However, the rate of immunisations increased in 2021.
What do commodity brokers do? ›
Commodity brokers buy and sell physical commodities (crude oil, grain, metals, coffee, sugar) on a commission basis on behalf of private and commercial clients. Making money for clients should be the main goal of a commodity broker as they earn a commission on every trade they make.
For investors, commodities are an important way to diversify their portfolios beyond traditional securities. Because the prices of commodities tend to move in the opposite direction of stocks, some investors rely on returns from commodities during periods of market volatility.
How can I be good at commodities trading? ›
So one of the commodity trading secrets is simply the old trading adage, “The trend is your friend”. Therefore, trend-following trading strategies – especially as applied to the longer-term time frames such as daily, weekly, or monthly charts – tend to work well in commodity trading.
What is the personality of a commodity trader? ›
Securities and commodities brokers score highly on extraversion, meaning that they rely on external stimuli to be happy, such as people or exciting surroundings. They also tend to be high on the measure of conscientiousness, which means that they are methodical, reliable, and generally plan out things in advance.
What is the difference between a commodity broker and a commodity trader? ›
A commodity broker is a firm or an individual who executes orders to buy or sell commodity contracts on behalf of the clients and charges them a commission. A firm or individual who trades for his own account is called a trader. Commodity contracts include futures, options, and similar financial derivatives.
How many hours do commodity traders work? ›
Securities, commodities, and financial services sales agents usually work full time and some work more than 40 hours per week. In addition, they may work evenings and weekends because many of their clients work during the day.
How much do commodities brokers make? ›
How much does a Commodity Broker make? As of Apr 20, 2024, the average annual pay for a Commodity Broker in the United States is $104,999 a year. Just in case you need a simple salary calculator, that works out to be approximately $50.48 an hour. This is the equivalent of $2,019/week or $8,749/month.
What degree do you need to be a commodities broker? ›
Do commodity brokers make a lot of money? ›
The estimated total pay for a Commodities Broker is $185,957 per year in the United States area, with an average salary of $89,162 per year.
How do commodity brokers make money? ›
Compensation for commodity brokers is often on a commission basis. They receive a percentage of the gross commissions from the trades placed by their customers. Commissions are fees for the execution of buying and selling orders. Some commodity brokers are highly successful.
