Futures Commission Merchant (FCM)
What it is:
How it works (Example):
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.