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What does a Discount Commodity Broker do?

By Ray Hawk
Updated May 17, 2024
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A discount commodity broker is an individual or company that offers to buy and sell commodity contracts for clients at a lower-than-standard commission rate. Discount brokers generally offer clients little in support services, such as in-depth technical market analysis, that a full service broker offers. In this respect, a discount commodity broker is very similar to a discount stockbroker in terms of bare bones client interaction and guidance.

Commodities are generally defined as unprocessed or partially-processed goods, such as grain and fruits. The commodities market has traditionally been centered on agricultural products, with livestock and grain futures contracts dominating. A discount commodity broker, however, can offer trade opportunities to clients in much more than cattle, wheat, and orange juice.

Markets engaged in by a discount commodity broker range across a wide spectrum, from energy to precious metals to stock indexes. Financial services trading, such as trading on the international currency exchange, and the trading of financial derivatives and hedge funds are examples. These modern commodities consume an increasingly large share of what a discount commodity broker focuses on.

Traders are individuals who speculate on the market with their own money, whereas a discount commodity broker works for clients and trades their assets for them. Most professionals in the commodities market are brokers, but traders and brokers have the same aim in mind. Money is generally made by buying contracts at a low price and selling them at a higher one.

The primary difference between a discount commodity broker and a full service broker is in the decision-making process on trades. Full service brokers work one-on-one with clients, walking them through the best decisions as to when and where to invest their money. Little guidance is generally expected from a discount commodity broker, and clients who utilize them tend to be individual traders with a proven track record of experience in the market.

Speculating in commodities is often short-term and involving seasonal products. It is also standard practice to trade commodities on margin, putting up a small percentage of money to trade at a much higher total. This greatly increases the profit to be made on small percentage market gains while also increasing the risk of loss. The job of a discount commodity broker is a high stress occupation because of these factors.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

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