Futures Commission Merchants (FCM)
A futures commission merchant holds customer funds and clears futures trades. Learn how FCMs differ from introducing brokers and how funds are protected.
To trade futures in the US, you need an account with a futures commission merchant (FCM), either directly or through an introducing broker. An FCM is a firm registered with the CFTC that accepts orders for futures and options on futures, accepts customer money to margin those trades and usually clears them through exchange clearing houses. FCMs sit at a critical point in the futures system: they hold customer funds and guarantee their customers' performance to the clearing house.
Who is who in futures brokerage#
| Role | What it does | Holds customer funds? |
|---|---|---|
| Futures commission merchant (FCM) | Accepts orders and customer funds, clears trades | Yes |
| Introducing broker (IB) | Solicits customers and accepts orders, but passes accounts to an FCM | No |
| Clearing member | An FCM that is a member of a clearing house | Yes |
| Commodity trading advisor (CTA) | Gives trading advice or manages accounts | No |
| Commodity pool operator (CPO) | Runs funds that pool money for futures trading | Pool assets held at FCMs |
All must register with the CFTC and be members of the NFA unless exempt. See Trading Regulators: SEC, CFTC, FINRA and NFA.
How customer money is protected#
| Protection | Detail |
|---|---|
| Segregation | Customer funds must be held separately from the FCM's own money in designated accounts |
| Daily reporting | FCMs report segregated balances to regulators |
| Capital requirements | Minimum adjusted net capital, at least $1 million and more depending on customer business |
| Residual interest | FCMs must keep their own money in customer accounts as a buffer |
| Clearing house safeguards | Margin, guarantee funds and member obligations. See Clearing Houses and Central Counterparties |
There is no SIPC style insurance for futures accounts. If an FCM fails with a shortfall in segregated funds, customers may share losses.
How margin flows#
- You deposit margin with your FCM.
- The FCM posts margin to the clearing house for its customers' positions.
- Each day, positions are marked to market; gains are credited and losses debited. See Mark-to-Market.
- If your account falls below maintenance margin, the FCM issues a margin call or may liquidate positions. See Futures Margin: Initial and Maintenance.
Failures that shaped the rules#
| Case | What happened |
|---|---|
| MF Global, 2011 | The FCM collapsed with a shortfall of about $1.6 billion in customer funds after using them improperly; customers were eventually largely repaid through bankruptcy recovery |
| Peregrine Financial Group, 2012 | The founder had falsified bank records for years, hiding a customer fund shortfall of about $200 million |
These failures led to stronger rules, including electronic confirmation of segregated balances directly with banks.
Choosing a futures broker#
| Factor | Question |
|---|---|
| Regulation | Is it a registered FCM or IB, with an NFA BASIC record? |
| Financial strength | FCM financial data is published monthly by the CFTC |
| Costs | Commissions, exchange fees, platform and data fees |
| Platforms | Which trading platforms are supported? See NinjaTrader |
| Margin policy | Day trading margins and liquidation rules |
Frequently asked questions#
What is a futures commission merchant?#
A CFTC registered firm that accepts futures orders and customer funds for margin, and usually clears trades through exchange clearing houses.
What is the difference between an FCM and an introducing broker?#
An FCM holds customer money and clears trades; an introducing broker brings in customers and passes their accounts to an FCM.
Are futures accounts insured?#
There is no SIPC insurance for futures accounts; protection comes from segregation rules, capital requirements and clearing house safeguards.
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