Futures 101

This involves opening your individual trading account and--with or without the recommendations of the brokerage firm--making your own trading decisions. You will also be responsible for assuring that adequate funds are on deposit with the brokerage firm for margin purposes, or that such funds are promptly provided as needed. Practically all of the major brokerage firms you are familiar with, and many you may not be familiar with, have departments or even separate divisions to serve clients who want to allocate some portion of their investment capital to futures trading. All brokerage firms conducting futures business with the public must be registered with the Commodity Futures Trading Commission (CFTC, the independent regulatory agency of the federal government that administers the Commodity Exchange Act) as Futures Commission Merchants or Introducing Brokers and must be Members of National Futures Association (NFA, the industrywide self-regulatory association). Different firms offer different services. Some, for example, have extensive research departments and can provide current information and analysis concerning market developments as well as specific trading suggestions. Others tailor their services to clients who prefer to make market judgments and arrive at trading decisions on their own. Still others offer various combinations of these and other services. An individual trading account can be opened either directly with a Futures Commission Merchant or indirectly through an Introducing Broker. Whichever course you choose, the account itself will be carried by a Futures Commission Merchant, as will your money. Introducing Brokers do not accept or handle customer funds but most offer a variety of trading-related services. Futures Commission Merchants are required to maintain the funds and property of their customers in segregated accounts, separate from the firm's own money. Along with the particular services a firm provides, discuss the commissions and trading costs that will be involved. And, as mentioned, clearly understand how the firm requires that any margin calls be met. If you have a question about whether a firm is properly registered with the CFTC and is a Member of NFA, you can (and should) contact NFA's Information Center toll-free at 800-621-3570 (within Illinois call 800-572-9400).

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