Brokerage firms serve as a vital link between buyers and sellers in ensuring trading of commodities through exchanges. These are the firms which actually execute sales and purchase orders of traders on exchanges against a specified rate of commission. In addition, these firms take their own positions in markets. As sophisticated players of commodity trading, these firms are also consulted by major traders on likely demand and supply scenarios regarding commodities and consequent market dynamics.
The agriculture commodities traded on major exchanges include soybean, cotton, corn and wheat; crude oil is one of the major non-agriculture exchange-traded items. Commodity brokerage firms are equally active in options as well as futures markets.
Commodity brokerages operate along the same lines as their counterparts in stock, bond and currency markets. The big ones usually provide value added services in addition to executing orders of their clients. Under value added services, these firms usually provide key market intelligence through published news letters and personal advice. These are called full service commodity brokerage firms in the market jargon, and they charge a relatively high rate of commission. In contrast, there are firms which offer few services other than executing their clients’ sale and purchase orders. But, on the other hand, they also charge comparatively low rates of commission.
Some of these offer discounts to the prevailing commission rates in the markets. These are called discount brokers. Then, we have brokers in the commodity markets which offer even higher discounts to their clients. The latter are known as deep discount brokers. While big traders generally go for full service, smaller traders prefer discount brokers in order to limit costs and increase profit margins.