Futures Commission Merchant Agreement

FCMs must undergo audits and demonstrate a sufficient level of capital to conduct their operations. In addition, FCM employees must demonstrate knowledge of futures trading and undergo substantive checks. In recent years, trade and investment in futures markets has attracted more and more participants. Futures markets tend to be more volatile than other asset markets and operate with a high level of leverage. Only a small margin (a performance bond) is needed to launch a futures position. In the absence of regulated forward commissions that control the flow of activity to the stock markets, the potential for abuse would be enormous. Futures brokers are usually employed by or are linked to an FCM. This streamlines the operation of activities that take place on the stock markets. It creates an environment in which effective regulation and supervision is possible. Future Commission traders play a central role in the volatile world of futures trading. In Europe, FCMs are analogous to futures market clearing members. A Futures Merchant Commission (FCM) plays a vital role in enabling clients to participate in futures markets.

An FCM is a person or entity that participates in the invitation or acceptance of orders to buy or sell futures or options on futures contracts in exchange for the payment of money (commission) or other client assets. An FCM is also responsible for collecting customer margins. FCM is also responsible for ensuring the provision of assets after the expiry of the futures contract. A futures commission trader is able to execute futures orders and grant loans to clients who wish to take such positions. These include many brokers with whom investors trade on futures markets…

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