Futures Commission Merchant
Tue, Apr 15A futures commission merchant (FCM) is an entity or individual that seeks or accepts orders for the purchase or sale of futures contracts, options on futures, retail off-exchange forex contracts, or swaps, and receives funds or other assets from clients to facilitate these orders.
The FCM is also tasked with collecting margins from clients and ensuring the delivery of assets or cash in accordance with the terms outlined in the contract.
To operate, an FCM must be registered with the National Futures Association (NFA) and accredited by the Commodities and Futures Trading Commission (CFTC).
If a firm is soliciting or accepting orders for the buying or selling of retail off-exchange forex contracts and is receiving money or assets from retail clients, it must be classified as a Forex Dealer Member.
A forex dealer member (FDM) is an organization that acts, or offers to act, as a counterparty in an off-exchange foreign currency transaction with a person who is not an eligible contract participant. This transaction can be:
- a futures contract, an option on a futures contract, or an option contract (excluding options traded on a securities exchange); or
- offered or entered into on a leveraged or margined basis, or financed by the offeror, counterparty, or a person acting in concert with the offeror or counterparty on a similar basis.
An FCM must be certified by the National Futures Association (NFA) before it can facilitate the buying and selling of futures contracts on a futures exchange.
Besides acting as a broker, an FCM may extend credit to investors looking to enter the futures markets. These margin accounts can hold cash and/or securities that can be exchanged for futures contracts.
For instance, if Joe wants to buy corn futures contracts for his business, he would contact an FCM. Similar to a stockbroker with stocks, the FCM acts as an intermediary by purchasing the contracts on Joe's behalf.
When the contracts reach their delivery date, the futures commission merchant ensures that the contract is fulfilled and that the corn is delivered to Joe as per the terms specified in the contract.
An FCM is certified to assist investors who wish to enter the commodities markets.
The FCM serves as an intermediary by facilitating the sale of futures contracts and the delivery of the underlying commodities.
Much like stockbrokers, they act as intermediaries between buyers and sellers.
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