During inflationary periods, commodities markets flourish. Many investors turn to precious metals like gold, silver, platinum and titanium to ensure wealth protection when equity markets come under pressure. In the recent years, there have been massive purchases of gold by Central banks of China, Mexico and India. Even retail investors are also investing in precious metals to balance their portfolios. In the metals market, you would find availability of some of the most popular investment assets. If you want to become a precious metals broker, you ought to follow the guidelines given below:
i) Obtain a License to become a Metal Broker: If you want to trade in precious-metals futures, you need to be licensed and get registered with the NFA or National Futures Association. It is a self-regulation group. In order to keep the trust of the investors, this body makes constant attempt to protect the integrity of this trading industry. Whoever wants to become a commodities broker must complete a rigorous series of professional and personal tests so that he can become licensed. The tests include:
- Series 3 Examination: This examination is a written one and is divided into two parts. It is administered by the NFA itself. In the first part, you would need to study about the basic concepts in futures markets that include hedges, contracts, speculation, analysis, options and other principles. In the second half, you would study about market regulations and forging productive client/broker relationships.
- Complete an 8-R form: All the applicants need to fill this form as required by NFA as a part of background check procedure by the organization. You need to provide your residence history of the past 5 years and work history of last 10 years. You need to list any event of arrest or any other major disciplinary actions taken against you when you were working in a licensed capacity.
- Undergoing a Background Check: As soon as you complete filling the 8-R form, you would be asked to go to the police station where your fingerprints would be taken. Then, the fingerprints would be sent to the NFA along with 8-R form. Thereafter, the FBI will conduct a background investigation on you.
ii) Find Work as a Valuable Metals Trader: There are several companies that specialize in commodities trading. You need to target those. Two ways are there to work as licensed precious-metals broker.
- Introducing Broker or IB: As an IB, you would have to ask for buy and sell orders on metals and metals futures. IBs work as a liaison between the traders and the clients.
- Futures Commission Merchant or FCM: The duty of FCMs is to execute all futures trades and hold the funds for trading future contracts.
iii) Choose to Become an Independent Metal Trader: If you do not want any kind of hassles, you can choose to become independent metal trader. They do not have to face any of the regulatory or licensing hurdles like futures traders. This is because for the former, the work is limited to buying and selling physical valuable metals. You need to get in touch with a recognized clearing firm, which would provide continuous mentorship, training and clerical support. A highly regarding metal clearing firm would always adhere to industry standards.
Most people prefer to trade in gold. However, if you want to deal with something less valuable and therefore less risky then you can become a silver broker. However, you must always keep in mind that metals trading are subject to market risk. Thus, invest up-to that amount of money, the loss of which you can bear.
Trading Precious Metals Using Leverage
Some brokers allow their clients to trade spot gold and silver using leverage. Alpari, for example, allow trades using 1:200 leverage; allowing clients to trade in both rising and falling markets. Leverage is essentially trading on credit as it allows someone to deposit a small amount of cash into their account and then borrow the remainder. The minimum amount that is in the account to trade using leverage is known as ‘the margin’.
If you’re going to allow your customers to trade using leverage, you must provide them with a warning about the risks involved. There’s no set wording to use, but it is usually phrased as something similar to:
“Trading using leverage carries a high degree of risk to your capital, and it is possible to lose more than your initial investment.”
Despite the warnings, in the precious metals markets, trading using leverage is widely seen as an efficient use of capital as it allows traders to make trades that they’d otherwise be unable to make. It’s a beneficial asset to traders who have edge.