Commodities Futures Broker (CFB) and Stock Brokers, both reside in the financial industry, but when you think of the quantity and possibly quality, Commodities Futures Broker are unique. CFB’s are – in a very specific niche of the futures, commodities and options world. There are close to a million stock brokers, and less than a one-hundred thousand CFB’s. Online trading, truly turned everyone into a “stock-broker”, in that, anyone can buy stock, and operate mutual funds. On the converse, when it comes to the actual trading of commodities, there is no general set rule, or a model with commodity trading. However, if you are looking to become a CFB, there are two key avenues to consider, before stepping into this arena of the financial market.

  1. How do I become a Commodities Futures Broker?
  2. Is there a need today?

Each of these questions should be at the top of a long list of problem solving questions to see if you have the wherewithal to jump into the commodities market as a broker.

Firstly, before stepping into the market, and offering online trading platforms, dealing with Futures Commission Merchants (FCM) you first have tobe licensed and registered with the National Futures Association (NFA).  In short, the NFA requires all to register, that have the intent to do professional business in the futures market. Think about the registration as a fitness test. Remember in Physical Education (P.E.), you were to run laps, do chin up, pull up a rope, to see if you were “in-shape”?  This same process, allows the organization to gauge you individually or collectively, to see if present or future (no pun intended), will be subject to federal regulations. There are general exceptions to the rule, for example if individually or your firm falls under one of these seven, trade agencies:

  • Futures Commission Market (FCM)
  • Swap Dealer (SD)
  • Major Swap Participant (MSP)
  • Retailer Foreign Exchange Dealer (RFED)
  • Introducing Broker (IB)
  • Commodity Pool Operator  (CPO)
  • Commodity Trading Advisor (CTA)

With the NFA, you can register online for a more relaxed approach for your company or individual registration. There is a silver lining with registering online; you can receive a temporary license from the NFA, as a broker, from the online registration system (ORS), if applicable. A general template can be downloaded and viewed, so that you can follow the standard means to apply with the NFA. In addition to registering with the NFA, there is a two part exam. Its proper name is the Series 3 for commodity brokers and not the series 7 for stock brokers. This exam has to be administered and passed in order for you to become a certified commodities futures broker.

Overall the series 3 is a look at market regulations and futures theory trading (trading models). There is a mix of multiple choice, and true and false. The exam last for 2 hours and 30 minutes. Think of this as the SAT of futures trading. Most people do not finish this test on time, so watch your time closely.

  • Part 1: Is heavily favored on vocabulary, (what do you know). A general understanding of hedging, why futures contracts are important, futures options, the ideas of technical analysis, and spread trading.
  • Part 2: Mostly touches on, doing the right thing (customer based). This portion, really hits where the rubber meets the road, because it test your ideals, ethics and what’s right for the customers.It could be titled “compliance/ regulations part”.

The test in general, can be easy, hard, or in between if prepared well for it. Preparation is the key to success when it comes to futures trading. Use prep exams manuals, take prep classes, read up on new market regulations, flash cards, do everything you feel that is necessary to become a skilled commodity futures broker, after all, this is your trading future. If you put the work in, to pass the test, you very well could pass the series 3 exam. Once, you are tested, and you are registered and now licensed, you may wonder is there a need?

The long and short of it, is yes. A general rule of thumb is that stock brokers do not trade commodities, so you may want to stay clear of stock brokering firms. In addition, you can look for firms that specialize in just commodities, and begin cutting your teeth there to begin expanding on your knowledge in the futures market. If you like adventure, and pace, Chicago has the CME group, where you can gain a wealth of knowledge as a commodity futures broker.However, there are commodity brokerage firms all over the country. Do you homework, make sure the company you are looking to work for has a good regulatory record by using and click on the BASIC. All in all, you can make a success as a broker, stay focused, and it can last a lifetime.

Disclaimer – Trading Futures, Options on Futures, and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. Past performance is not indicative of future results. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. Opinions, market data, and recommendations are subject to change at any time.

By Kar

Dr. Kar works in the interface of digital transformation and data science. Professionally a professor in one of the top B-Schools of Asia and an alumni of XLRI, he has extensive experience in teaching, training, consultancy and research in reputed institutes. He is a regular contributor of Business Fundas and a frequent author in research platforms. He is widely cited as a researcher. Note: The articles authored in this blog are his personal views and does not reflect that of his affiliations.