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ESMA’s product intervention rules are a just over a month away from going live, with a major part of the changes including limiting leverage to a maximum of 30:1 for major FX pairs and 20:1 for major Indices.
(This is a guest post supplied by Joshua Raymond of XTB)
As a result, many traders are considering upgrading their status from Retail to Elected Professional. Why? Because these product intervention rules only affect traders who are classified as ‘Retail’, meaning that Elected Professionals can still trade with their normal leverage levels i.e. 200:1.
It’s also important to note that not everyone can elect to become a professional client. Only those clients with sufficient trading experience and understanding of the product can do so, both of which are validated by a quantitative and qualitative test by the broker.
Are you considering upgrading to Elected Professional ? Then be careful.
Whilst it may look attractive as traders get to keep the current levels of leverage, upgrading your classification comes with some hidden dangers that you should be aware of. It’s a broker’s responsibility to ensure you are fully informed of the protections you lose by upgrading.
At XTB , we’ve created a special webpage which lists everything you need to know about becoming an Elected Professional client. In the meantime, I’ve summarised the key protections you keep and lose in the short list below.
|What you typically keep||What you typically lose|
Why is the loss of Negative Balance Protection & Client Money segregation a big deal?
With leveraged trading, it’s a significant risk that you could lose more than the funds you hold in your account. This is because you are essentially trading larger positions than your invested funds could normally afford. One of the key motivations behind installing Negative Balance Protection for retail traders is that it affords them greater protection against sharp market moves that are amplified by leverage. So it provides peace of mind to know that even though you deposited for example £2,000 in your trading account, you cannot lose more than that amount and end up owing the broker money.
Additionally, retail clients have the ultimate protection in that firms are required by the FCA to fully segregate all retail Client Money in a trust account and not mix this with their own funds. The protection being that in the event a broker goes into liquidation, all retail Client Money is still safe and secure for the administrators to return back to clients. However, many brokers won’t segregate the funds of Elected Professionals clients, meaning that if a broker goes bust, Elected Professional client funds are at significant risk.
Keep Negative Balance Protection and Full Client Money Segregation with XTB
At XTB , we provide Negative Balance Protection and fully segregate Client Money to ALL clients, regardless of classification and this gives Elected Professional clients who will keep their higher leverage levels even greater protection.
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