What Are Futures Options Brokers?

Futures Options Brokers: Form And Function

As the name implies, futures options brokers are entities that give interested individuals the ability to trade derivative products. They are the backbone of the futures and options industry, and they encourage participation and promote liquidity. In return for a fee, a broker ensures that you are connected to the market and able to buy or sell products at your discretion.

If you are going to actively trade derivatives, then your partner will be one of the many futures options brokers taking new clients. However, before you deposit any funds, it is imperative to ensure your broker meets three basic requirements:

• Licensed: The broker must be licensed by the National Futures Association (NFA) and adhere to guidelines put forth by the Commodity Futures Trading Commission (CFTC). If not, the operation is illegitimate and should be avoided.
• Competent: Longevity in the industry and a verifiable track record of servicing clients are two characteristics common to competent brokers. If a firm is new to the business or has a small client base, then you need to perform due diligence to ensure they complete their duties adequately. Obtaining personal references or trading small capital on a trial basis are two ways of determining a broker’s proficiency.
• Reputable: Ensuring that a brokerage firm is in good standing is necessary and fairly easy. You can reference the CFTC SmartCheck database online. If a broker is deemed by the CFTC to be “registration deficient,” it is time to pursue other leads.

Upon selecting a reputable and competent broker, you may commence active trading. It is in this arena where futures options brokers actually furnish you with the means to pursue profit as you see fit. By completing an extensive array of duties on a daily basis, brokers facilitate the trading activity of clients in the following ways:

• Market Access: Data flow to and from the exchange is an indispensable aspect of trade in the digital marketplace. Aside from basic internet connectivity, it is the responsibility of the broker to ensure that data flow is robust and unfettered. In addition, brokerage services typically offer or support a variety of trading software platforms for interacting with the markets.
• Availability Of Margin: A key function of a futures broker is to extend credit to their clientele. In doing so, financial leverage may be applied via margin trading practices.
• Order Execution: Perhaps the most important job a broker has is making sure trades are executed efficiently. This involves all facets of market access, specifically low-latency order routing and server-side hosting.
• Diverse Product Offerings: One of the biggest advantages of trading derivatives is the diversity of alternatives. Products are available facing the equity, currency, commodity, and debt markets. Futures options brokers are tasked with opening these opportune venues to traders in the pursuit of their goals.

In many ways, your broker is your lifeline to the marketplace. They ensure that orders are executed, data feeds are operational, and necessary credit is available. Without the services of a strong brokerage, engaging the futures and options markets efficiently is an exercise in futility.

Getting Started With Futures and Options

Standardized futures and options contracts afford traders several advantages over more traditional avenues of investment. Products facing a broad spectrum of asset classes feature the volatility and liquidity vital to the successful application of many financial strategies.

For more information on how futures and options can help you achieve your market-related goals, schedule a no-obligation consultation with a member of the StoneX team today.