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The Complete Guide to Futures Trading: What You Need to Know about the Risks and Rewards by Lind-Waldock

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CHAPTER 12

Opening an Account

If you have ever purchased any real estate or a new vehicle or applied for a loan, you may have been overwhelmed by the paperwork and wondered how all those forms could possibly be necessary for what seems to be a relatively straightforward transaction. When you open a futures account, be prepared for more of the same. All of the paperwork does have a purpose for both the client and the brokerage firm, also known as a futures commission merchant (FCM).

For the client:

  • Discloses the risks associated with futures trading.
  • Describes the rights and responsibilities of each party to the transaction.
  • Educates the client about the process of futures trading.

For the FCM:

  • Provides information regarding the client's finances.
  • Discloses the client's level of knowledge and experience in markets the client intends to trade.
  • Describes the rights and responsibilities of each party to the transactions.

When you trade, you want to know that every person on the other side of your positions will fulfill the terms of the transactions into which you have entered. Other traders expect the same thing of you and deserve to know that you have been screened and found acceptable to participate in trading. The Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) require FCMs to have complete information on file prior to opening an account as part of their due diligence. This paperwork also serves to protect both you and the FCM.

OPENING ACCOUNT ...

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