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 can still trade with larger account sizes, as long as they are classified as retail clients. 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 client, thus brokers may provide a route to be an Elective Professional Client after they sign up, however this can result in a loss of some protections afforded to retail clients. There is also a Per Se Professional Client classification, which is for institutions and institutional investors.

Protections available to retail clients 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) and others. The broker may choose to continue to provide some protections to professional clients (or may not). In general though the brokers will offer higher leverage to professional clients in the EEA (for example City Index can provide leverage up to 400:1 for professional clients, versus up to for retail clients).

To be classified as an Elective 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 size of the portfolio of the trader. The requirements are that the client:

  • Has made an average of 10 significantly sized transactions over the past 4 quarters
  • Has a financial portfolio exceeding €500,000
  • Has worked in financial services for at least 1 year in a professional position requiring knowledge of the products to be traded

The client can find the specifications as required by a particular broker on their website. Professional and retail traders can use the same online trading platforms. Some brokers which offered retail services in the EEA have chosen only to provide services to professional clients, while others continue to provide services to both.

Professional Trading Account Example

City Index UK offers a Professional Trader account to experienced traders who meet the criteria. The Professional Account does not include negative balance protection (thus losses can exceed deposits), does not have 50% margin close out and has higher leverage limits. While they are not obliged to City Index does continue to provide segregated accounts for client funds, unchanged best execution policy, unchanged trade confirmation details and key information documents for Professional Accounts.

Clients will lose the protections of leverage and margin limits for retail clients and mandatory changes will not be mandatory (for example margin limits and margin close out levels). City Index will furthermore assume that the trader has the necessary experience and knowledge to understand the risks in trading leveraged products and may use more sophisticated language when communicating with professional clients. In terms of the requirements given above, a significantly sized transaction is defined as having a notional value of £10,000 for Equities and £50,000 for Forex, Indices and Commodities or equivalent in the local currency.

Traders who become classified as professional clients can receive a £1,000 Switcher Bonus: T&Cs apply, monthly volume based cash rebates on Forex, Cryptocurrecy and Indices trades: T&Cs apply, a credit facility: T&Cs apply, broker assisted dealing and a dedicated Client Relationship Manager. Traders can trade on the online trading platforms provided for all clients (MT4, Web Trader, Advantage Web and AT Pro) and trade on the 12,000+ markets offered by City Index UK.

The procedure for new City Index clients to become an Professional Client is to sign up for an account, then click the Professional Trader banner in the MyAccount area and apply via the Professional application form. To receive the Switcher Bonus the trader needs to opt in via a link in an email sent by City Index when their account is approved. The client will receive their £1,000 Switcher Bonus within 72 hours of opting in.