Commodity options brokerage accounting
Client Financial Requirements FCMs often require their customers to meet certain financial conditions before the firm will agree to fill futures or options contract orders. Clients are required to have a certain minimum gross income or net worth. A minimum commodity options brokerage accounting line of credit or bank cash deposit may also be required. These conditions are in effect to protect FCMs from clients who are not serious or commodity options brokerage accounting are in financial trouble.
Some of these guidelines may be reduced or waived under certain conditions, especially for commodity options brokerage accounting who only plan to hedge in their trading accounts. Contacts may provide background information on market news that is not otherwise readily available. Generally, commissions are not a high-cost item. Compare all services offered by various companies before choosing a firm based on low commission. The objective is to make a profit for the client. However, the client, not the brokerage firm, covers any losses.
For more information about the content of this document, contact Neil Blue. This document is maintained commodity options brokerage accounting Erminia Guercio. This information published to the web on February 15, Introduction Farm managers planning to use futures and options as part of their marketing plan must use a commodity broker to buy and sell their futures and options.
An experienced broker, also known as a Futures Commission Merchant FCMcan be a very valuable asset to the farm manager. Step One in choosing a FCM is deciding what level of service and advice is needed. Some farm managers want a broker whose firm provides market background and outlook information.
Trading costs are normally higher for commodity options brokerage accounting who provide additional services. Step Two in choosing a broker involves talking to several firms and their brokers either by phone or in person. Talking to more than one broker at each firm helps you choose a broker you are comfortable with on a personal level, which is also important.
Some firms have several FCMs in their offices. Often each FCM has a different area of interest. Some deal mostly in industrial commodities or financial futures, while others concentrate mostly on agricultural commodities. FCMs tend to have an interest in either hedge accounts to lock in the price of a product or in speculative trades. Client Protection FCMs, who accept futures and options trade orders on behalf of Alberta farmers, must be registered with the Alberta Securities Commission or the Investment Dealers Association, or both.
These registrations require that each FCM follow certain accounting standards and procedural practices and that the firm is financially secure. Each firm must file quarterly and annual financial statements. A chartered accounting firm also audits each firm annually. A clearing broker is employed by a company that has holds the right to trade directly on the various commodity exchanges. The clearing broker also maintains margin accounts directly with the futures exchanges and is commodity options brokerage accounting responsible for ensuring adequate funds are maintained in these accounts and if not, ensures the customer acts on margin calls.
An introducing broker takes futures and options orders from customers and relays them to a clearing firm to have the orders filled at the exchanges. The introducing broker also uses the clearing firm for depositing funds and ensuring that margin requirements of the exchanges are maintained.
If an introducing broker goes out of business, the clearing broker handles customer futures and options positions. An commodity options brokerage accounting broker will transmit trades through the head office of his or her clearing broker. CME Feeder Cattle futures, on the other hand, trade during the same day-time hours for both the electronic system and in the trading pits, as there is no overnight electronic session.
Customers wanting to trade at exchanges where there are both electronic and pits trades have the choice of commodity options brokerage accounting they want their trade executed.
Normally, FCMs will place orders on the electronic system unless customers specifically dictate they want their trade in the pit. Pit trading is gradually being phased out and replaced with electronic trading Client Financial Requirements FCMs often require their customers to meet certain financial conditions before the firm will agree to fill futures or options contract orders.
Introduction Client protection Introducing and clearing commodity options brokerage accounting How trades are carried out Client financial requirements Good brokers Return to Marketing Risk Management page.
A commodity broker is a firm or individual who executes orders to buy or sell commodity contracts on behalf of clients and charges them a commission. A firm or individual who trades for his own account is called a trader. Commodity contracts include futuresoptionsand similar financial derivatives.
Clients who trade commodity contracts are either hedgers using the derivatives markets to manage risk, or speculators who are willing to assume that risk from hedgers in hopes of a profit. Ever since the s, the majority of commodity contracts traded are financial commodity options brokerage accounting with financial underlying assets such as stock indexes and currencies. When executing trades on behalf of a client in exchange for a commission he is acting in the role of a broker.
When trading on behalf of his own commodity options brokerage accounting, or for the account of his employer, he is acting in the role of a trader. Floor trading is conducted in the pits of a commodity exchange commodity options brokerage accounting open outcry. A floor broker is different than a "floor trader" he or she also works on the floor of the exchange, makes trades as a principal for his or her own account. IBs do not actually hold customer funds to margin.
They advise commodity pools and offer managed futures accounts. Commodity options brokerage accounting exercise discretion over their clients' accounts, meaning that they commodity options brokerage accounting power of attorney to trade the clients account on his behalf according to the client's trading objectives. A CTA is generally the commodity equivalent to a financial advisor or mutual fund manager. A commodity pool is essentially the commodity equivalent to a mutual fund.
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