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To be eligible for a professional account, you will need to meet at least two of the following criteria:
- Sufficient trading activity in the last 12 months
You have carried out transactions, in significant size, on the relevant market at an average frequency of 10 per quarter over the previous four quarters (with or other providers). Relevant market – OTC Derivatives such as Leveraged CFDs, Forex, or Spread Betting.
- Relevant experience in the financial services sector
You work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of the transactions or services engaged in.
- Financial instrument portfolio of over €500,000 (including cash saving and
Financial instrument portfolio of over €500,000. Financial instruments include shares, derivatives (only cash deposits made to fund/profits realised from investing in derivatives), debt instruments and cash deposits. It does not include property portfolios, direct commodity ownership or notional values of leveraged instruments.
- Professional Trader
What is a professional trader, and how did this term arise?
A professional trader is simply an experienced investor who can trade with a large amount of capital and who understands or correctly assesses the risks and rewards available in a highly leveraged trading environment. This term particularly came to prominence when the European Securities and Markets Authority (ESMA) changed the regulatory landscape in a bid to offer more protection to retail traders when they are trading leveraged financial assets online. This meant that clients trading with any CFD brokerage firm would be classified as either ‘retail traders’ or ‘professional traders’. Any individual signing up would, by default, be considered a ‘retail trader’ who will receive greater protection in the form of leverage restrictions, standardised risk warnings, communication in ‘friendly’ lingo, as well as negative balance protection.
The decision to govern beginner, novice or less experienced traders with stricter guidelines is obviously a positive for the industry. But there was a need to give more freedom to more advanced traders who desired more flexibility and who clearly understood the consequences of their trading decisions. Professional trading is not affected by any of the above restrictions. To be classified as a professional trader, a retail trader must apply to the broker after meeting the eligibility criteria set out above.
How to become a professional trader if I don’t qualify yet?
Trading with a professional trading account comes with some freedom as well as other advantages. If you do not qualify yet, you can take steps to hasten your eligibility. This can be done by boosting your trading experience and volume on a regular retail trading account. Alternatively, you can take a certification course on derivatives trading to build and improve your trading knowledge, skills, and techniques. You will become a professional trader once you meet the necessary capital requirement.
If you do not meet the capital requirements, you can continue trading on a regular retail trading account and enjoy the protection offered as you continue to advance your trading career.
What are the advantages of a professional trading account?
The main advantage of trading with a professional trading account is that you can trade your preferred financial assets with maximum leverage and minimum margin requirements. The lack of leverage restrictions means that you can maximise capital allocation and earn magnified profits even when underlying assets make minimal price changes in the market. Leverage effectively boosts your capital base and can help you maximise trading opportunities in the market. Lower margin requirements also allow professional traders to make the most out of their trading capital. Margin requirements for retail trading accounts are typically set at 50%, which can limit the trading activity. But with professional trading accounts, there are convenient margin requirements across different assets to provide traders with maximum flexibility when trading.
What are the extra risks for professional traders?
A major risk for professional traders is the inherent danger of trading with high leverage. Even though professional traders are considered experienced and aware of the risks and rewards in the market, leverage (especially high leverage) is an ever-present danger that can amplify one’s losses on unsuccessful trades. Beyond that, professional trading accounts are not covered by the negative balance protection, which means that investors can lose more funds than their initial deposit. Brokers are also not required to disclose important risk information to professional traders, and any communication can utilise investing jargon or complex trading terminologies. It is expected that this should not cause any concerns with professional traders, but it can sometimes mean that trading decisions can be made without taking into account such vital information.
Nonetheless, professional traders can still enjoy the safety and security of their funds as well as a fair and transparent trading environment.