In this article, We learn about "Futures Commission Merchant ".Let's Go!
A Futures Commission Merchant (FCM) refers to a company or individual that solicits or accepts the purchase and sale of futures contracts, futures options, retail OTC foreign exchange contracts or swap orders, and accepts money from customers or other assets to support such orders.
FCM is also responsible for collecting deposits from customers and ensuring the delivery of assets or cash in accordance with the terms specified in the contract.
FCM must be registered with the National Futures Association (NFA) and must be recognized by the Commodity and Futures Trading Commission (CFTC).
If a firm is soliciting or accepting orders to buy or sell retail OTC FX contracts and accepts funds or assets from retail clients, the firm needs to be designated as a Forex Dealer Member.
A Forex Dealer Member (FDM) is an entity that is, or is willing to be, a counterparty to an over-the-counter foreign currency transaction with a non-eligible contract participant, and the transaction is:
- A futures contract, an option on a futures contract or an options contract (other than an option traded on a stock exchange); or
- Offered or entered into on a leveraged or margin basis, or financed on a similar basis by the offeror, counterparty or person acting in concert with the offeror or counterparty.
How does a Futures Commission Merchant (FCM) work?
FCM must be certified by the National Futures Association (“NFA”) in order to be permitted to facilitate the purchase and sale of futures contracts on a futures exchange.
In addition to acting as a broker, FCM can also provide credit to investors seeking to enter the futures market. These margin accounts may hold cash and/or securities convertible into futures contracts.
For example, Joe wishes to purchase corn futures contracts for his business. Joe gets in touch with FCM, and FCM acts like a stockbroker, acting as an intermediary, buying contracts on Joe's behalf.
When the contract reaches the delivery date, the futures commission merchant also ensures that the contract is fulfilled and delivers the corn to Joe according to the terms stated in the contract.
Why is a Futures Commission Merchant (FCM) important?
FCM is certified to help investors who want to enter the commodity market.
FCM acts as an intermediary, negotiating the sale of futures contracts and the delivery of the underlying commodity.
Like stockbrokers, they act as middlemen between buyers and sellers.
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