Professional Trading Account - Professional vs Retail Traders

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Preofessional Traders vs Retail Traders

Brokers which are based in the EEA (European Economic Area) can offer services to retail clients and professional traders. While professional traders do not fall under the new rules established for CFDs, for example limits on leverage, at the same time they can lose some protections afforded to retail clients.

Before the rules changes clients were (and are still) classified at the time of application as retail or professional. But a difference is that before the accounts were more tightly aligned in terms of such factors as maximum leverage. However in 2018 ESMA (the European Securities and Markets Authority) made a number of changes to protect retail clients including limiting leverage to a maximum of 30:1.

If a trader wishes to keep their retail client protections, then they may still be able to trade with accounts requiring a higher minimum deposit, as long as they are classified as retail clients and as long as the broker offers such account types. However the restrictions for retail traders will be in place for these accounts.

The change in regulations for retail clients regarding such factors as leverage means that some clients may seek to be re-classified as a professional trader, thus brokers may provide a route to be an Elective Professional Trader (EPT) after they sign up, however this can result in a loss of some protections afforded to retail clients. These protections include negative balance protection, leverage limitation (increasing leverage increases risk), communication (including standardised risk warnings) and products (the broker determines if products are suitable for the trader based on their knowledge and experience).

To be classified as a professional client, at least two of three stipulations have to be met, which can be found at the broker, based on the volume of trading, professional experience in financial services and the assets of the trader. Professional and retail traders can use the same online trading platforms.

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