You guys might consider writing letters to the NFA requesting that brokers who make recommendations to clients be compensated by profit sharing rather than or at least in addition to straight commissions.
At the worst New Market Lizard chop shops, the first problem is that most brokers are simply clueless. You might even have a broker with ten years experience but the guy doesn't understand, for example, the mechanism for money creation via private banks. He sees every asset in the universe diving in price, the TED spread (he has no idea what this is usually) passing the stratosphere and credit markets frozen and concludes that inflation will overwhelm us within three months because the Fed cuts rates. Or thinks that eurodollar futures five years out are a prediction of the fed funds rate for that time, or they trade energy all year round but don't know what a crack spread is. Gamma? Isn't that a ray gun? They just don't know enough about their markets. That might be OK if they were selling someone else's trades. Instead they often spend their days dialing for dollars and have to basically come up with trades in their spare time. Somehow the sales mentality and the trading mentality seem to be in conflict imo. The younger brokers at crappy firms typically try and try to make good trade recommendations but because, for example, they're buying out of the money options and charging $60 or $70 commissions (of which they might get 40%), they're playing a sucker's game. They'll get some poor greedy person to open a 5K account and put it all into cheap options, and this may even be mandated by their bosses who have zero faith in their trading ability. Wait for a good trade? But the client might get upset their money isn't "working"and pull the funds! Trade it in the next thirty minutes! Close your eyes and buy! The bosses figure that when the majority of these young brokers become so disheartened by the losing trades and finally quit that they, the principles of the more scummy firms, can take over the clients and thereby avoid all the mind-numbing phone calls. But how can you ever expect to win when buying $400 calls way out of the money and charging all-in $99 commission? It's just lunacy and they should be regulated out of existence.
This doesn't have to mean going around and shutting down the firms; some firms are quite good and anyhow there's an easier way. Make an NFA rule that distinguishes between broker-assisted vs self-directed trades. Self-directed trades should only be allowed small commissions. Broker-assist or full service (whatever the difference really is, if there is one), should be compensated by profit sharing with only a smaller up-front commission. At present brokers cannot easily get into profit sharing schemes with clients, which is a terrible shame.
I agree that there are indeed good brokers out there, some very good full service brokers in addition to good self-directed brokers (who are generally more like reps than brokers truth be told). Even with profit sharing instead of up front commissions the broker-client problem (or "principle agent problem" in fancy terms) would still exist, but it would be much smaller I think. Bad trades would result in little gain for the broker, and the better brokers would generally stay in business while the shysters selling someone on 20 cheap gold calls $70 out-of-the-money with 30 days to expiration, those lizards would have to slither away...
Now, truth be told, self-directed retail futures traders might on average fare even worse than most of the chop shop brokerage clients. You should see a run sheet at a discount futures IB, or a spot forex IB. Like a graveyard. Undercapitalized, over leveraged, under informed, overconfident, undisciplined, generally speaking doomed. Most people should probably just put their money into a good managed futures account, or with a broker who gives them trade recommendations that are similar to managed futures trades. Then they can go and open a $200 account on Oanda when they feel like playing trader or else focus on putting together a sensible stock portfolio...
