How to perform due diligence when looking for a futures broker

[brownsfan019 17]

I thought a thread that discusses the different ways to perform due diligence on futures brokers that do business in the US could be of use. After compiling the info, it might be a good idea for one of the mod's to sticky this.

 

Here are a few ways I will check on a broker that I may be considering doing business with:

 

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NFA Background Affiliation Status Information Center (BASIC) Search:

http://www.nfa.futures.org/basicnet/

 

This search will present to you regulatory actions, NFA Arbitration Awards, and CFTC cases among other things.

YOU MUST PERFORM THIS BASIC SEARCH WITH ANY BROKERAGE FIRM AND/OR BROKER YOU ARE CONSIDERING DOING BUSINESS WITH.

 

If you have questions after seeing the report, feel free to contact the NFA directly as they are VERY friendly and full of information! NFA Contact link: http://www.nfa.futures.org/contact/indexContact.asp

 

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Financial Data for Futures Commission Merchants

http://www.cftc.gov/marketreports/financialdataforfcms/index.htm

 

This report will show how well (or not so well) a FCM is capitalized. Here's a link to how the report is broken down - http://www.cftc.gov/marketreports/financialdataforfcms/fcm_aboutreport.html

 

You'll want to reference this report from time-to-time to check in on the financial condition of your current broker(s) and/or potential futures broker(s). Again, if you have questions, contact the NFA and the CFTC. Keep in mind that these regulatory agencies are there to help you, so use them.

 

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Those are the more 'formal' ways that I conduct some easy searches.

 

Other things I would do are:

> Google search on the firm.

> Check Traders Laboratory and Elite Trader for reviews.

> The internet is a wonderful tool to do research on a firm or broker, so use it. Just keep in mind that message boards are only so useful as there is plenty of misinformation out there.

> And always trust your gut. If things look great, but you just don't have a good feeling, there's plenty of other brokers out there to chose from.

[Guest cooter]

Excellent information, Brownsfan. This should be stickied for future reference.

[Soultrader 12]

Thank you very much brownsfan for providing this information. Like Cooter requested, I have stickied this thread for reference.