Set Up Your Accounts As An Energy Investor
As an energy investor, to buy stocks, bonds, options, and mutual and exchange-traded funds, you need a brokerage account. This can be a full-service brokerage that offers you investment advice and can fully manage your account, or it can be a discount brokerage that charges you a commission for trades you execute on your own.
To buy commodity futures, like oil, natural gas, uranium, and coal, you need an account with a futures commission merchant (FCM), the entity that solicits and accepts commodity orders based on the futures contract market. Alternatively, you can work with an introducing broker (IB), who works directly with you to make investment decisions but delegates the trade execution to an FCM.
If you’d like a professional to make commodity trading decisions for you, you can select a commodity trading advisor (CTA) to manage the account.
You should open a full-service brokerage or managed brokerage account if
You don’t follow the markets on a routine basis
You routinely follow the markets but don’t have the confidence or deep knowledge to execute a trading strategy
You don’t want to allocate the necessary time to managing your own investments
You’re comfortable allowing someone else make investment decisions for you
Know that ultimately, only you have your best interests in mind, so if you choose a managed account, make sure you investigate the firm by asking about its past performance, current clients, investment philosophy, and fees.
No matter which type of account you choose, make sure to read the account agreement and understand which exchanges you’ll have access to, what the commissions are, what research tools the account offers, and whether the account has any minimum capital requirements.
You can also employ leverage by using a margin account, which allows you to invest with borrowed capital. By using leverage, you can control large positions with little upfront capital. You must be qualified to use a margin account, and though it can lead to larger gains, it can also lead to larger losses. Be sure to check the various margin requirements of brokers and exchanges.
Use these external resources to help choose and evaluate full-service and commodity brokers:
Full-service brokers: Financial Industry Regulatory Authority (FINRA)
Futures commission merchants: National Futures Association (NFA)
Introducing brokers: National Introducing Brokers Association (NIBA)
If you want to make all the decisions and execute the trades for stocks, bonds, funds, and options, you should go with a discount brokerage. This table shows the top discount brokers of 2012 as ranked by The Wall Street Journal.
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