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How to Be Sure Your Futures Broker Is Reputable

by | Futures 101

Securing the services of a competent and reputable futures broker is a critical first step in your journey into the marketplace. A broker facilitates trades, extends credit, and offers expertise ― which means it’s essential to select a good one.

Depending upon the type of trader you are, brokerage suitability will vary. Above all else, potential broker candidates need to possess these two qualities:

  • Competence: Providing high-quality market access and trade-related services are integral aspects of being a competent broker.
  • Reputation: Any broker worthy of your business must be bound by a strict ethical and legal framework.

Years in the industry and word of mouth are great common-sense indicators of a firm’s competency. However, when it comes to determining how reputable a futures broker is, the process is a bit more scientific. By performing a little due diligence, finding out whether your broker is on the up-and-up can be easily be accomplished in an afternoon.

The Licensing Requirements of a Futures Broker

In the U.S., futures brokers are subject to a high regulatory standard. Firms must be registered with multiple authorities, and brokers are required to be licensed. These guidelines are in place to ensure the safety of all participants and preserve the integrity of the marketplace.

Read our guide, Basic Training for Futures Traders, and discover 50 of the best tips from experts.

At the corporate level, brokerage firms are subject to two regulatory bodies:

  • Commodities Futures Trading Commission (CFTC)
  • National Futures Association (NFA)

For the individual broker, operating within a firm or autonomously, the licensing process is extensive. Here are the official requirements that aspiring brokers must satisfy:

  • Series 3 certification: According to the NFA, “any individual who is applying as an associated person or NFA Member must provide evidence of passing the Series 3 exam within the past two years.”
  • Submission of Form 8-R: Aspiring brokers are required to complete and submit Form 8-R to the NFA. It’s a full criminal, regulatory, and financial disclosure of the individual in question.
  • FBI background check: When Form 8-R being completed, the applicant is fingerprinted. Both prints and the form are then sent to the FBI for a full background check.

If your chosen firm is in good standing with the CFTC/NFA, and your personal broker is licensed, you can bet that your funds are in good hands.

Checking up on Your Broker

A common question among those new to the markets is as follows: “how do I find out if my futures broker is licensed and in good standing?” In practice, coming up with an answer isn’t all too difficult. There are tools available online that can bring the reputability of futures brokers into focus relatively quickly.

One way to research the background of any futures broker is to reference online databases offered by the Financial Industry Regulatory Authority (FINRA) and NFA. Using these tools, you should be able to find out the legal status of your broker in under an hour:

While they’re certainly a good place to start, these tools are not the be-all and end-all to establishing a broker’s reputability. Information can change very quickly in regards to pending judgments and disciplinary actions. It’s important to stay up-to-date in this area and research any news items, both current and in the recent past, involving the broker in question.

Finding a Good Broker Is a Good Place to Start

Before ever placing a market order, it’s wise to determine whether your futures broker is reputable. Outstanding judgments or expired licenses can be signs of deeper troubles. However, by taking some time to research your broker, the perils of sub-par service may be avoided.

If you’re in the market for a competent, reputable futures brokerage, give us a look. Featuring cutting-edge technology, a dedicated team, and a second-to-none service suite, Daniels Trading is a solid choice for your venture into the marketplace.

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Risk Disclosure

The StoneX Group Inc. group of companies provides financial services worldwide through its subsidiaries, including physical commodities, securities, exchange-traded and over-the-counter derivatives, risk management, global payments and foreign exchange products in accordance with applicable law in the jurisdictions where services are provided. References to over-the-counter (“OTC”) products or swaps are made on behalf of StoneX Markets LLC (“SXM”), a member of the National Futures Association (“NFA”) and provisionally registered with the U.S. Commodity Futures Trading Commission (“CFTC”) as a swap dealer. SXM’s products are designed only for individuals or firms who qualify under CFTC rules as an ‘Eligible Contract Participant’ (“ECP”) and who have been accepted as customers of SXM. StoneX Financial Inc. (“SFI”) is a member of FINRA/NFA/SIPC and registered with the MSRB. SFI does business as Daniels Trading/Top Third/Futures Online. SFI is registered with the U.S. Securities and Exchange Commission (“SEC”) as a Broker-Dealer and with the CFTC as a Futures Commission Merchant and Commodity Trading Adviser. References to securities trading are made on behalf of the BD Division of SFI and are intended only for an audience of institutional clients as defined by FINRA Rule 4512(c). References to exchange-traded futures and options are made on behalf of the FCM Division of SFI.

Trading swaps and over-the-counter derivatives, exchange-traded derivatives and options and securities involves substantial risk and is not suitable for all investors. The information herein is not a recommendation to trade nor investment research or an offer to buy or sell any derivative or security. It does not take into account your particular investment objectives, financial situation or needs and does not create a binding obligation on any of the StoneX group of companies to enter into any transaction with you. You are advised to perform an independent investigation of any transaction to determine whether any transaction is suitable for you. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of StoneX Group Inc.

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