Is trading commissions an important factor to consider while choosing a commodities broker?
One difference between stock trading and futures trading is the commission structure. In futures contracts, commission rates are paid per contract; not per trade.

Comparing commissions are based on a round-turn rate. A half-turn rate only covers the buy or sells side of a trade; a round-turn covers both buy and sell sides. As a rule, trading commissions are quoted as round turn. However, a commodities broker may decide to quote half-turn rates to some of the beginner traders.

Broker Credibility

When a commodities broker misleads the public about their rates, this should immediately raise concerns. This practice compromises the broker’s credibility. Unfortunately, some traders won’t realize that they are being misled. The commodities broker may still get the business but its clients will suffer from higher transaction costs, and lower trade profits.

The commission a trader pays greatly depends on the trading style of the full-service commodities broker. Since 2005 or so, full service rates have ranged about $30 – $80. These commissions tend to be at the lower end of the range if a commodities broker makes trade recommendations daily. If the broker plans to make only a single trade after a month or two, then commission rates at the higher end of the range should be expected. It’s therefore highly probable that a trader’s account who actively trades $80 per round-turns in commissions will hardly survive. Commodities brokers of course must earn a profit. You simply need to confirm that you are paying a fair price for the services you receive.

Don’t Make Decisions Based Entirely on Trading Commissions

Most beginner traders often choose a commodities broker based on trading commissions. This is not at all times the best logic to follow. The principal considerations in choosing a commodities broker are whether you think the commodities broker will make you some money or you have a feeling that the commodities broker can be a good associate who will help you achieve your goals in the futures trade. Most commodities brokers allow for commission negotiations exceptionally for established clients. If a trader is not able to negotiate for lower commissions at the time of account opening, it may be possible later in the relationship

We are not advocating that commission rates should not be a significant factor to consider while choosing a commodities broker. They should. But also other factors should be weighed such as reputation, financial stability, execution speed, customer support, user-friendly trading platforms with appropriate features, and exchanges.

Last Friday’s late oil stock crisis, in which investors were suddenly spooked – possibly by the escalating banking crisis across Europe – and began dumping their oil stocks, is only now beginning to hit investors and managed account traders hard like a Monday morning hangover. The crisis began on Friday when various international banks began threatening to stop lending money to certain European banks, thanks to the skyrocketing rate of European debt. Investors and managed account traders specializing in oil futures began to get nervous, and by the end of the day, the price of oil had plummeted more than three and a half percent. This incredible drop marks a new low for the price of oil this year.

Although this new low seems to be shakily holding, investors and managed account traders are still both curious and anxious about the European banking situation. It is yet unknown whether or not European leaders and financial authorities will be willing or even able to take the necessary drastic steps to salvage the deteriorating situation. If not, managed account traders and other investors will probably continue to sell their stocks in oil and the price of oil will continue to find new lows.

After their recent financial crises, US banks are also trying to minimize their exposure to the European situation. Like managed account traders, banks across the US are at once demanding more information about the situation and attempting to distance themselves from it.