Chapter 13: Establishing an Account

At the time you apply to establish a futures trading account, you can expect to be asked for certain information beyond simply your name, address and phone number. The re-quested information will generally include (but not necessarily be limited to) your in-come, net worth, what previous investment or futures trading experience you have had, and any other information needed in order to ad-vise you of the risks involved in trading fu-tures contracts. At a minimum, the person or firm who will handle your account is required to provide you with risk disclosure documents or statements specified by the CFTC and ob-tain written acknowledgment that you have received and understood them.

Opening a futures account is a serious deci-sion— no less so than making any major financial investment—and should obviously be approached as such. Just as you wouldn’t con-sider buying a car or a house without carefully reading and understanding the terms of the contract, neither should you establish a trad-ing account without first reading and under-standing the Account Agreement and all other documents supplied by your broker. It is in your interest and the firm’s interest that you clearly know your rights and obligations as well as the rights and obligations of the firm with which you are dealing before you enter into any futures transaction. If you have questions about what the provisions of the Agreement mean, don’t hesitate to ask. A good and continuing relationship can exist only if both parties have, from the outset, a clear under-standing of the relationship.

Nor should you be hesitant to ask, in advance, what services you will be getting for the trad-ing commissions the firm charges. As indi-cated earlier, not all firms offer identical services. And not all clients have identical needs. If it is important to you, for example, you might inquire about the firm’s research capability and whatever reports it makes avail-able to clients. Other subjects of inquiry could be how transaction and statement information will be provided, and how your orders will be handled and executed.

If a Dispute Should Arise

All but a small percentage of transactions involving regulated futures contracts take place without problems or misunderstandings. However, in any business in which millions of contracts are traded each year, occasional dis-agreements are inevitable. Obviously, the best way to resolve a disagreement is through di-rect discussions by the parties involved. Fail-ing this, however, participants in futures markets have several alternatives (unless some particular method has been agreed to in advance). One option is to file a claim for reparations at the CFTC. However, a more informal, and gen-erally faster, alternative is to resolve the dis-pute through arbitration, either at the exchange where the contracts were traded or at NFA. There are several advantages to NFA arbitration:

You do not have to use an attorney.
You can state your claim in your own words
Without citing any law or rule.
You can elect, if you prefer, to have a majority of arbitrators who have no connection with the futures industry.
Parties to an NFA arbitration can seek resolution through NFA’s mediation program at no additional charge.
In some cases, it may be possible to conduct arbitration entirely through written submis-sions.

If a hearing is required, NFA can hold hearings in many metropolitan areas throughout the country. For an explanation of the arbitration program and how it works, contact NFA for a free copy of NFA Arbitration: Resolving Customer Disputes.