The idea of being a professional is when a specific activity becomes your occupation and primary means of maintaining a livelihood. For example, a professional football player is not considered as a professional because of their level of skill, rather because playing football is their primary source of income. Being skilled at the sport is a requirement of doing this as a job. Having a skill does not necessarily make you a professional. Being considered as a professional forex trader follows the same logic, trading forex is their primary source of income.
Many people trade forex as a hobby on the side of their day-job. Even if they are very successful, this alone doesn’t qualify them as a professional forex trader or make them successful at forex trading.
Besides the dictionary definition of what constitutes a professional, there is an emerging definition being introduced by brokers in Europe. This follows ESMAs product intervention measures which were introduced in 2018. The controversial measures required brokers to severely limit the amount of leverage given to retail clients, i.e. non-professional clients. For forex traders who wanted to increase their leverage above 1:30 (3.33%) they needed to declare themselves as a professional forex trader.
These measures that are enforced all across Europe are applicable to retail clients only. This means that professionals, such as companies and individuals who meet specific criteria are exempt.
According to ESMA, in order to be considered as a professional, you need to meet certain criteria. Simply put, these criteria are as follows;
The purpose of these criteria is to evaluate if someone has relevant experience to understand the risks of investing with high leverage. Based on these requirements, your broker will be able to provide you with as much leverage as they are willing to offer. However, when being treated as a professional, your broker will not be responsible for negative balance protection or similar initiatives designed to protect retail traders.
Because of Sweden’s unique approach to overseeing the forex market in the country, all clients regardless of wealth and background can open an account without leverage limitations. The advantages of this are a streamlined and simple application process and the ability to continue enjoying a European business environment.
Scandinavian Capital Markets is one example of a Swedish forex broker which welcomes clients of any background. Scandinavian Capital Markets offers leverage up to 1:100 (1%) to all clients, not just traders who are able to meet the criteria of being considered a professional. It’s worth noting that the minimum deposit for opening an account with this broker is $10,000. The reason for this deposit is explained in our detailed review of Scandinavian Capital Markets.
When you declare yourself as a professional forex trader, you don’t necessarily declare that you trade for your full-time job. The recent changes in the EU online trading landscape caused a new and confusing definition to emerge. When declaring yourself as a professional, you are actually just declaring that you are an experienced forex trader.
An important thing to consider prior to declaring yourself as a professional forex trader with a European forex broker is that you fully understand how your rights change. If you are treated as a professional, it’s considered that you are aware of the risks of investing and your broker is not required to disclose those risks to you. In addition, your broker is exempt from a number of other responsibilities, such as best execution policies, negative balance protection and segregating your trading principal from company funds. You should ask yourself, is having higher leverage worth sacrificing such important rights that protect you? Or do other, better options exist?