4 Things to Know About a Commodities Trader

A commodities trader is different from other stock traders because he or she deals specifically in a very unique market. Even though the commodities market does interact with the rest of the economy, it is subject to factors and drifts entirely unique to the particular commodity being traded. Before you pick your trader, consider a host of factors of importance to you.

#1 Education

Commodities traders typically have an educational background in finance, economics or engineering. These fields are highly technical, and commodities trades are highly technical, so they blend well together. All traders must pass exams hosted by the SEC in order to place trades. You can expect your trader to have a Series 65 or a Commodities Trading Adviser (CTA) designation. You may want a trader who has a Certified Financial Adviser (CFA) designation, but this additional designation is optional. Education is not necessarily an indicator of success in trading. However, at least a basic knowledge of the ethics and regulations of advising on commodities trades will serve your trader well and in turn serve you well.

#2 Expertise

You should know if your trader has a specific area of expertise. Plainly said: no trader knows each commodity equally. Any trader who tells you he or she is an expert in the entire commodities industry is not telling the truth. Everyone has a specialty. Maybe he had success in grain trades in the past, leading him to lean heavily into this market. Maybe she knows a good deal about refined oil, and she relies on this knowledge to make key trades in this area. Ask your trader which markets he or she specializes in.

#3 Experience

Just as education is not immediately an indicator of success, experience does not always qualify a person to be your commodities trader. You may not feel comfortable with a very young trader fresh out of school. However, you may be completely comfortable putting your trade into her hands, knowing she has the same qualifications as the other traders on the market. This part is up to you. A young trader with less experience will likely charge a lower commission, which can be highly desirable. A more experienced trader may be more expensive. The expense is worth the peace of mind for many investors, though, which is why these traders can charge the rates they do. Determine your priorities in terms of experience to make your decision.

#4 Appetite for Risk

You will want a trader whose appetite for risk matches your own. You may feel that commodities trades should be highly aggressive. In any commodity market, prepare for some losses. It is part of the game. However, not all commodities traders are as risky as others. Some aim for moderate gains through more predictable options such as commodities indexes or commodity bonds. Others, who do want more risk, tend to favor options and futures contracts. Depending on the risk and reward you are looking for, locate a trader whose concepts of valuable trades match your own.

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