We have been awarded professional client status by our brokerage.
To be classified as a professional client the qualification is 2 out of the following 3 statements below:
- Carried out CFD, spread betting or forex, in signicant size, at an average frequency of 10 per quarter over the previous four quarters
- An investment portfolio (including cash deposits and financial instruments) exceeding €500,000
- Work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of CFDs, spread betting or forex
Why is professional client status a big deal? Because margin requirements will increase substantially for ‘retail traders’; for professional clients they will not.
What is ‘margin’?
- It is a good faith deposit that a trader puts up for collateral to hold open a position.
- It is not a transaction cost, but a portion of our account equity set aside and allocated as a margin deposit.
- When trading with margin the amount of margin needed to hold open a position is determined by trade size. As trade size increases, margin requirement increases.
This has no effect, however, on our usual spread payment: which we consider as a true identification of a retail trader. If we pay a standard spread then by definition we are retail traders.
Institutional proprietary traders (or ‘prop’ traders as they are known) trade the firms money (not clients money) and often at a reduced spread cost, or no cost at all. They are, to our mind, non-retail traders.
But to be considered a professional client, and thereby maintain a desirable margin commitment, is great.