What is a Futures Commission Merchant (FCM)?
A futures commission merchant (FCM) is a company or individual certified to negotiate the sale and purchase of futures contracts, as well as oversee the delivery of underlying commodities to investors.
How Does a Futures Commission Merchant (FCM) Work?
An FCM has to be certified by the Commodity Futures Trading Commission (CFTC) before being allowed to facilitate the purchase and sale of futures contracts on a futures exchange. In addition to acting as a broker, an FCM may provide credit to investors seeking entry into futures markets. These margin accounts may hold cash and/or securities which may be exchanged for futures contracts.
For example, Bill wishes to purchase corn futures contracts for his business. Bill gets in touch with an FCM who, much like a stockbroker with stocks, acts as an intermediary by purchasing the contracts on behalf of Bill. When the contracts reach their delivery date, a futures commission merchant also ensures that the contract is honored and the corn is delivered to Bill according to terms specified in the contract.
Why Does a Futures Commission Merchant (FCM) Matter?
An FCM is certified to assist investors wishing to enter the commodities markets. The FCM works as an intermediary by negotiating the sale of futures contracts as well as the delivery of underlying commodities. Much like stockbrokers, they act as intermediaries between buyers and sellers.
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