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Professional Client - Everything You Need to Know [FAQ]
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Professional Client - Everything You Need to Know [FAQ]

created Paweł MosionekJuly 5 2018

The time has come to clarify further doubts regarding the coming August 1 this year. ESMA regulations. Professional customer - who is that? What should you do to become a professional? What can be gained and what can be lost? How does the verification process work and is there anything to be careful about? You will find out in the article below.


KNF introduces the status of a professional client - WE CHECK THE PROCEDURE


The biggest change introduced by ESMA there is obviously a limitation of leverage. This procedure was to reduce the investment risk in the Forex market, especially among inexperienced traders. This was also the general assumption - to increase protection for retail investors.

The originator of the guidelines, however, foresaw a certain gateway behind which there is a path to leaving the current leverage, and even to receive even higher. But not everyone will be able to open this door. We are talking about the possibility of changing the customer's classification from retail to professional. According to the regulator, when certain requirements are met, it can be stated that the client is aware of the investment risk and the risks of using higher leverage, which means that he will be able to use it at his own request. How?

Professional client - conditions

To change your qualification it is enough to satisfy 2 with 3 conditions. These are:

  1. Conducting transactions with a value of the PLN equivalent of at least EUR 50 each, in the number of at least 000 transactions per quarter in the last 10 quarters;
  2. The value of the investment portfolio held exceeds the equivalent of EUR 500 (or the equivalent in another currency);
  3. Professional experience for at least one year in the financial sector in a position requiring knowledge regarding transactions in financial instruments or brokerage services.

READ ALSO: ESMA - List of instruments with breakdown of leverage levels


Everything seems clear. Are you sure? Doubts arise when we start to analyze the requirements more closely. The regulator indicates the conditions, but there is no clearly defined, uniform verification procedure for the data provided by the client. This means that procedures at Forex / CFD brokers may differ from each other. We checked it and it is. But more on that in a moment.

Condition 1 - Turnover

In point 1), we refer to "carrying out a transaction". Interestingly, the transaction is buy and sell, i.e. both opening and closing a position. In other words, it is not about 10 separate positions, but in fact only about 5 (you need to open and close a position 5 times). The volume is already more precisely defined. EUR 50 is the equivalent of 000 lots for a pair EUR / USD or another with EUR as base currency (EUR / xxx). For other pairs, the position value must be calculated.

And here is the continuation. Speech is about 5 transactions with the volume 50 000 EUR. And if we open 100 transactions after 0,05 lota? Unfortunately, it will not work. Total turnover will be the same, but according to ESMA, a professional client plays a larger volume for the transaction and does not necessarily contain more. Therefore, 0,5 lot on EUR / USD is the minimum volume to be included in the group of five required transactions.

As a proof, the broker may request a statement from the investment account (statement) for the last 12 months. Is it possible to present several statements from different accounts or brokers, which together will complement each other? Yes, provided that all accounts belonged to the same person.

PFSA interpretation - October 2018

In the case of Polish Forex brokers, as a result of the new KNF guidelines, which interpret ESMA rules, the turnover condition is met when the trader made the transaction according to the above-described criteria with one difference. Each item must be equivalent to the minimum 50 000 EUR before taking into account leverage. In practice, this means that a single transaction should be allocated to min. 50 000 EUR real capital (for 1 leverage: 30 and EUR / USD pair this is the equivalent of 15 flights).

Condition 2 - Portfolio Value

The portfolio value includes all financial assets, including, inter alia, cash, deposits, shares, investment funds, ETFs, other financial instruments. Real estate and physical raw materials and metals are not included in this group.

Nobody explicitly specified the verification conditions of owned property. It can be assumed that asset values ​​selected during the registration of the real account will play a key role. In addition, the legal department may wish to provide answers about your investments, and in extreme cases even require their official confirmation.

The deposit paid by us can also be significant. If we declare having 500 00 EUR, would we have fun in Forex with 200 USD deposit? Perhaps. But does this suggest that we are professional clients? You can have reservations.

Condition 3 - Work experience

Nobody specifies exactly which positions will be classified as "knowledgeable (...)". Is a person working in an exchange office counted among them? Who will decide on "accepting" the customer experience? Not only that, how will it be verified?

This is where the first information from brokers that differ depending on the company comes to the rescue. For example, some brokers declare that in most cases a client's statement about where he worked and what his obligations were, which he declares in the form, is enough. In short - just submit your current CV.

However, we have met with the information of brokers who immediately require a certificate of employment and information from the employer, so with such a variant one should be reckoned with.

Benefits from changing the classification

By changing our classification, we guess we can only gain. In general, it actually is. But there are some exceptions.

# 1 - Leverage. When you switch to "pro" you may get higher leverage. What? Depends on the broker. The ranges range from 1: 100 to even 1: 500.

# 2 - Negative Balance Protection. Unfortunately, by switching to "pro" you can lose it. The broker is only required to guarantee protection against overdraft to retailers. However, this is where marketing specialists come to the rescue. The "Pro" client is the most valuable one. So let's keep him. Consequently, most brokers voluntarily choose to uphold protection for all. Okay ours! 🙂


READ ALSO: Forex brokers and overdraft protection. List of offers


# 3 - 50% Stop-Out Rule. This change of classification has no effect on this. The new rule will apply to everyone.

# 4 - Maintaining your position. Lowering the lever may force all open positions to close. Not only because of the lack of sufficient security, but also because of the "technical solutions". This only applies to selected brokers.

# 5 - Guarantee of funds. Each regulation provides a different level of security for clients' funds in the event of the broker's bankruptcy. For example, in Great Britain it is 50 GBP, in Poland 000% up to EUR 100 and 3000% up to EUR 90, and in Cyprus EUR 22. And we write this because of Cyprus - after changing the classification from a retail client to a professional client, this protection will cease to apply. There are no changes to the other regulations and protection will also be maintained for the PRO.

# 6 - Reclassification. By becoming a professional, you will at all times be able to revert to the "default" classification, which is theoretically intended to offer greater protection.

How to go to the PRO client?

Each broker can have its own procedure. However, in most cases this will involve the completion of an additional form. Most often it is available on the broker's website or in the Customer Panel (e.g. Tickmill). After submitting the application, you should wait for its approval or further verification steps. But do you really need a lot of leverage?

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About the Author
Paweł Mosionek
An active trader on the Forex market since 2006. Editor of the Forex Nawigator portal and editor-in-chief and co-creator of the ForexClub.pl website. Speaker at the "Focus on Forex" conference at the Warsaw School of Economics, "NetVision" at the Gdańsk University of Technology and "Financial Intelligence" at the University of Gdańsk. Twice winner of "Junior Trader" - investment game for students organized by DM XTB. Addicted to travel, motorbikes and parachuting.
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