Flash Crashes and your futures broker

TraderPlanet Futures and Options Trading EducationSome Futures Brokers Cut Corners they Shouldn't...

The futures and options broker you choose could be the difference between trading profitably and unsuccessful trading, this is particularly true during extreme volatility. 

I’ve been a commodity broker since 2004. Throughout that time we’ve seen massive shifts in the manner retail traders execute orders in the futures and options markets, but more importantly we’ve seen transaction costs plummet due to massive improvements in execution efficiency.

Generally speaking, technology and easy market access has been a giant step in the right direction to leveling the playing field for the average futures market speculator. However, I believe the pendulum has swung a little too far. I argue that overly competitive commission rates have caused brokers to cut corners that shouldn’t be cut. The result is, in my opinion, decreased odds of trading success for the average retail trader.

Commodity Trading Transaction Costs are Low, but are they too Low?


Commodity brokers in the 1980s will tell you they enjoyed round turn commissions in the $50 to $100 range; fast forward to the 2010s and brokers are charging well under $10 for online trading. This has been a fabulous transformation for retail traders, but there is such a thing as too much of a good thing. As futures brokerage commissions get cheaper, the service and trading support gets worse.

In fact, I argue that this environment encourages green commodity futures and options traders to participate in the markets without the proper assistance they need; and higher lot sizes than they should (low transaction costs encourage over-trading). In addition, experienced traders who are normally highly self-sufficient are sometimes finding themselves in a precarious position due to the inadequacy of their brokerage firm. If you are new to commodity trading, you might not understand this but if you’ve traded through a calamity such as the 2010 flash crash, the August 2011 debt crisis, or even the August 2015 China collapse, you’ve probably discovered that your brokerage firm has the potential to play a big part in determining trading success of failure.

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