The Role of the
Brokerage Firm
Although most
trading takes place
on an exchange, you
can’t get there
without going
through a broker,
your entré to the
trading world. In
fact, your only
contact with trading
may well be your
broker as you may
not know or care
which exchange is
executing your
order.
The broker serves a
number of functions
in addition to
holding your trading
account and
transmitting your
orders to the
exchange. Depending
on the level of
service you require,
the broker can
educate you about
trading; provide you
with data, price
quotes, research
reports and other
information; offer
trading
recommendations, or
perhaps even trade
your account for you
in a managed
account. For more
information on how
to determine what
type of broker you
need, see the
section in this
tutorial on picking
a broker.
At a minimum a
brokerage firm
serves as a conduit
to expedite your
orders, reports
confirmations and
provides you with
account statements
of your activity.
An important broker
function is to
determine traders’
"suitability" for
trading various
instruments based on
their financial
status and their
eligibility to trade
specific positions
based on the amount
of money in their
account. As a
gatekeeper to the
trading arena, the
broker also helps
the futures or
securities industry
maintain the
integrity of the
trading process by
screening every
customer and every
order as part of its
fiduciary
responsibility to
collect, hold and
monitor the funds
you entrust to a
segregated customer
account.
All U.S. brokerage
firms must be
registered with
government
regulatory agencies.
Depending on their
level of financial
backing and the
services they
provide to traders,
futures brokerage
firms may be
classified as
futures commission
merchants (FCMs) or
introducing brokers
(IBs). Individual
futures brokers are
registered as
associated persons (APs).
Websites that allow investors to
locate brokers near them ( ones like
www.locatebrokers.com ) can be found with a
web search and often give additional research
and locator tools.
