Forex introducing broker requirements texas

Be certain to read and understand all of the literature and agreements you receive from the broker. Some account managers have their own trading approaches and accept only clients to whom that approach is acceptable. Others tailor their trading to a client's objectives. In either case, obtain enough information and ask enough questions to assure yourself that your money will be managed in a way that's consistent with your goals.

Discuss fees. These charges are required to be fully disclosed in advance. Make sure you know about every charge to be made to your account and what each charge is for. While there can be no assurance that past performance will be indicative of future performance, it can be useful to inquire about the track record of an account manager you are considering. Account managers associated with a Futures Commission Merchant or Introducing Broker must generally meet certain experience requirements if the account is to be traded on a discretionary basis.

Finally, take note of whether the account management agreement includes a provision to automatically liquidate positions and close out the account if and when losses exceed a certain amount. And, of course, you should know and agree on what will be done with profits, and what, if any, restrictions apply to withdrawals from the account. Use a Commodity Trading Advisor As the term implies, a Commodity Trading Advisor is an individual or firm that, for a fee, provides advice on commodity trading, including specific trading recommendations such as when to establish a particular long or short position and when to liquidate that position.

Generally, to help you choose trading strategies that match your trading objectives, advisors offer analyses and judgments as to the prospective rewards and risks of the trades they suggest. Trading recommendations may be communicated by phone, wire or mail.

Some offer the opportunity for you to phone when you have questions and some provide a frequently updated hotline you can call for a recording of current information and trading advice. Even though you may trade on the basis of an advisor's recommendations, you will need to open your own account with, and send your margin payments directly to, a Futures Commission Merchant. Commodity Trading Advisors cannot accept or handle their customers funds unless they are also registered as Futures Commission Merchants.

Some Commodity Trading Advisors offer managed accounts. The account itself, however, must still be with a Futures Commission Merchant and in your name, with the advisor designated in writing to make and execute trading decisions on a discretionary basis. Read it carefully and ask the Commodity Trading Advisor to explain any points you don't understand. If your money is important to you, so is the information contained in the Disclosure Document!

The prospectus-like document contains information about the advisor, his experience and, by no means least, his current and any previous performance records. If you use an advisor to manage your account, he must first obtain a signed acknowledgment from you that you have received and understood the Disclosure Document. As in any method of participating in futures trading, discuss and understand the advisor's fee arrangements.

And if he will be managing your account, ask the same questions you would ask of any account manager you are considering. You can verify that these requirements have been met by calling NFA toll-free at within Illinois call Participate in Commodity Pool Another alternative method of participating in futures trading is through a commodity pool, which is similar in concept to a common stock mutual fund.

It is the only method of participation in which you will not have your own individual trading account. Instead, your money will be combined with that of other pool participants and, in effect, traded as a single account. You share in the profits or losses of the pool in proportion to your investment in the pool.

One potential advantage is greater diversification of risks than you might obtain if you were to establish your own trading account. Another is that your risk of loss is generally limited to your investment in the pool, because most pools are formed as limited partnerships. And you won't be subject to margin calls. Bear in mind, however, that the risks which a pool incurs in any given futures transaction are no different than the risks incurred by an individual trader.

The pool still trades in futures contracts which are highly leveraged and in markets which can be highly volatile. And like an individual trader, the pool can suffer substantial losses as well as realize substantial profits. A major consideration, therefore, is who will be managing the pool in terms of directing its trading.

While a pool must execute all of its trades through a brokerage firm which is registered with the CFTC as a Futures Commission Merchant, it may or may not have any other affiliation with the brokerage firm. Some brokerage firms, to serve those customers who prefer to participate in commodity trading through a pool, either operate or have a relationship with one or more commodity trading pools.

Other pools operate independently. A Commodity Pool Operator cannot accept your money until it has provided you with a Disclosure Document that contains information about the pool operator, the pool's principals and any outside persons who will be providing trading advice or making trading decisions.

It must also disclose the previous performance records, if any, of all persons who will be operating or advising the pool lot, if none, a statement to that effect. Disclosure Documents contain important information and should be carefully read before you invest your money. Another requirement is that the Disclosure Document advise you of the risks involved. In the case of a new pool, there is frequently a provision that the pool will not begin trading until and unless a certain amount of money is raised.

Normally, a time deadline is set and the Commodity Pool Operator is required to state in the Disclosure Document what that deadline is or, if there is none, that the time period for raising, funds is indefinite. Be sure you understand the terms, including how your money will be invested in the meantime, what interest you will earn if any , and how and when your investment will be returned in the event the pool does not commence trading.

Determine whether you will be responsible for any losses in excess of your investment in the pool. If so, this must be indicated prominently at the beginning of the pool's Disclosure Document. Ask about fees and other costs, including what, if any, initial charges will be made against your investment for organizational or administrative expenses. Such information should be noted in the Disclosure Document. You should also determine from the Disclosure Document how the pool's operator and advisor are compensated.

Understand, too, the procedure for redeeming your shares in the pool, any restrictions that may exist, and provisions for liquidating and dissolving the pool if more than a certain percentage of the capital were to be lost, Ask about the pool operator's general trading philosophy, what types of contracts will be traded, whether they will be day-traded, etc.

You can verify that these requirements have been met by contacting NFA toll-free at within Illinois call All futures exchanges are also regulated by the CFTC. The NFA staff consists of more than field auditors and investigators. Firms and individuals that violate NFA rules of professional ethics and conduct or that fail to comply with strictly enforced financial and record-keeping requirements can, if circumstances warrant, be permanently barred from engaging in any futures-related business with the public.

The enforcement powers of the CFTC are similar to those of other major federal regulatory agencies, including the power to seek criminal prosecution by the Department of Justice where circumstances warrant such action. Futures Commission Merchants which are members of an exchange are subject to not only CFTC and NFA regulation but to regulation by the exchanges of which they are members. Exchange regulatory staffs are responsible, subject to CFTC oversight, for the business conduct and financial responsibility of their member firms.

Violations of exchange rules can result in substantial fines, suspension or revocation of trading privileges, and loss of exchange membership. Words of Caution It is against the law for any person or firm to offer futures contracts for purchase or sale unless those contracts are traded on one of the nation's regulated futures exchanges and unless the person or firm is registered with the CFTC.

Moreover, persons and firms conducting futures-related business with the public must be Members of NFA. Thus, you should be extremely cautious if approached by someone attempting to sell you a commodity-related investment unless you are able to verify that the offeror is registered with the CFTC and is a Member of NFA. In a number of cases, sellers of illegal off-exchange futures contracts have labeled their investments by different names--such as "deferred delivery," "forward" or "partial payment" contracts--in an attempt to avoid the strict laws applicable to regulated futures trading.

Many operate out of telephone boiler rooms, employ high-pressure and misleading sales tactics, and may state that they are exempt from registration and regulatory requirements. This, in itself, should be reason enough to conduct a check before you write a check. Establishing an Account At the time you apply to establish a futures trading account, you can expect to be asked for certain information beyond simply your name, address and phone number.

The requested information will generally include but not necessarily be limited to your income, net worth, what previous investment or futures trading experience you have had, and any other information needed in order to advise you of the risks involved in trading futures contracts. At a minimum, the person or firm who will handle your account is required to provide you with risk disclosure documents or statements specified by the CFTC and obtain written acknowledgment that you have received and understood them.

Opening a futures account is a serious decision--no less so than making any major financial investment--and should obviously be approached as such. Just as you wouldn't consider buying a car or a house without carefully reading and understanding the terms of the contract, neither should you establish a trading account without first reading and understanding the Account Agreement and all other documents supplied by your broker.

It is in your interest and the firm's interest that you dearly know your rights and obligations as well as the rights and obligations of the firm with which you are dealing before you enter into any futures transaction. If you have questions about exactly what any provisions of the Agreement mean, don't hesitate to ask.

A good and continuing relationship can exist only if both parties have, from the outset, a clear understanding of the relationship. Nor should you be hesitant to ask, in advance, what services you will be getting for the trading commissions the firm charges. As indicated earlier, not all firms offer identical services.

And not all clients have identical needs. If it is important to you, for example, you might inquire about the firm's research capability, and whatever reports it makes available to clients. Other subjects of inquiry could be how transaction and statement information will be provided, and how your orders will be handled and executed. If a Dispute Should Arise All but a small percentage of transactions involving regulated futures contracts take place without problems or misunderstandings.

However, in any business in which some million or more contracts are traded each year, occasional disagreements are inevitable. Obviously, the best way to resolve a disagreement is through direct discussions by the parties involved. Failing this, however, participants in futures markets have several alternatives unless some particular method has been agreed to in advance. Under certain circumstances, it may be possible to seek resolution through the exchange where the futures contracts were traded.

Or a claim for reparations may be filed with the CFTC. However, a newer, generally faster and less expensive alternative is to apply to resolve the disagreement through the arbitration program conducted by National Futures Association. There are several advantages: You can elect, if you prefer, to have arbitrators who have no connection with the futures industry.

You do not have to allege or prove that any law or rule was broken only that you were dealt with improperly or unfairly. In some cases, it may be possible to conduct arbitration entirely through written submissions. If a hearing is required, it can generally be scheduled at a time and place convenient for both parties.

Unless you wish to do so, you do not have to employ an attorney. The booklet is available at no cost. What to Look for in a Futures Contract? Whatever type of investment you are considering--including but not limited to futures contracts--it makes sense to begin by obtaining as much information as possible about that particular investment.

The more you know in advance, the less likely there will be surprises later on. Moreover, even among futures contracts, there are important differences which--because they can affect your investment results--should be taken into account in making your investment decisions. The Contract Unit Delivery-type futures contracts stipulate the specifications of the commodity to be delivered such as 5, bushels of grain, 40, pounds of livestock, or troy ounces of gold.

Foreign currency futures provide for delivery of a specified number of marks, francs, yen, pounds or pesos. Futures contracts that call for cash settlement rather than delivery are based on a given index number times a specified dollar multiple. This is the case, for example, with stock index futures. Whatever the yardstick, it's important to know precisely what it is you would be buying or selling, and the quantity you would be buying or selling.

How Prices are Quoted Futures prices are usually quoted the same way prices are quoted in the cash market where a cash market exists. That is, in dollars, cents, and sometimes fractions of a cent, per bushel, pound or ounce; also in dollars, cents and increments of a cent for foreign currencies; and in points and percentages of a point for financial instruments.

Cash settlement contract prices are quoted in terms of an index number, usually stated to two decimal points. Be certain you understand the price quotation system for the particular futures contract you are considering. Minimum Price Changes Exchanges establish the minimum amount that the price can fluctuate upward or downward.

This is known as the "tick" For example, each tick for grain is 0. You'll want to familiarize yourself with the minimum price fluctuation--the tick size--for whatever futures contracts you plan to trade. And, of course, you'll need to know how a price change of any given amount will affect the value of the contract. Daily Price Limits Exchanges establish daily price limits for trading in futures contracts.

The limits are stated in terms of the previous day's closing price plus and minus so many cents or dollars per trading unit. Once a futures price has increased by its daily limit, there can be no trading at any higher price until the next day of trading. Conversely, once a futures price has declined by its daily limit, there can be no trading at any lower price until the next day of trading. The price is allowed to increase or decrease by the limit amount each day. For some contracts, daily price limits are eliminated during the month in which the contract expires.

Because prices can become particularly volatile during the expiration month also called the "delivery" or "spot" month , persons lacking experience in futures trading may wish to liquidate their positions prior to that time. Or, at the very least, trade cautiously and with an understanding of the risks which may be involved. Daily price limits set by the exchanges are subject to change. They can, for example, be increased once the market price has increased or decreased by the existing limit for a given number of successive days.

Because of daily price limits, there may be occasions when it is not possible to liquidate an existing futures position at will. In this event, possible alternative strategies should be discussed with a broker Position Limits Although the average trader is unlikely to ever approach them, exchanges and the CFTC establish limits on the maximum speculative position that any one person can have at one time in any one futures contract.

The purpose is to prevent one buyer or seller from being able to exert undue influence on the price in either the establishment or liquidation of positions. Position limits are stated in number of contracts or total units of the commodity. The easiest way to obtain the types of information just discussed is to ask your broker or other advisor to provide you with a copy of the contract specifications for the specific futures contracts you are thinking about trading.

Or you can obtain the information from the exchange where the contract is traded. Understanding and Managing the Risks of Futures Trading Anyone buying or selling futures contracts should clearly understand that the Risks of any given transaction may result in a Futures Trading loss. The loss may exceed not only the amount of the initial margin but also the entire amount deposited in the account or more. Moreover, while there are a number of steps which can be taken in an effort to limit the size of possible losses, there can be no guarantees that these steps will prove effective.

We hope that this information has been helpful to you. Should you have any additional questions or concerns, please feel free to contact Daniel E. LeGaye or Michael Schaps by e-mail or phone, at , or consult with your legal counsel or third party consultant.

Visit our web site at www. The information contained herein is not, nor is it intended to be legal advice or establish or further an attorney-client relationship. All facts and matters reflected in this information should be independently verified and should not be taken as a substitute for individualized legal advice.

You should consult an attorney for individual advice regarding your own situation. Michael Schaps is not licensed to practice law.

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