Professional client

Under the EU's MiFID II rules, investment firms classify clients as retail, professional or eligible counterparties. Banks, insurers, funds and large companies are professional clients by default. Private individuals start as retail clients but can ask to be treated as professional, known as "elective" professional status.

The criteria for individuals

Under Annex II of MiFID II, the firm must assess the client's expertise, experience and knowledge, and confirm that at least two of these three are met:

• the client has carried out transactions of significant size on the relevant market at an average frequency of 10 per quarter over the previous four quarters;
• the client's financial instrument portfolio, including cash deposits and financial instruments, exceeds 500,000 euros;
• the client works or has worked in the financial sector for at least one year in a professional position requiring knowledge of the transactions or services envisaged.

The procedure is also set out: the client asks in writing, the firm gives a clear written warning of the protections and investor compensation rights that may be lost, and the client confirms in a separate document that they understand. The firm must take reasonable steps to check the criteria are met. The UK's FCA applies a very similar test.

What changes

ESMA's retail CFD measures do not apply to professional clients, so the broker may offer higher leverage than the retail caps, and the 50% close-out, negative balance protection and standard risk warnings are no longer required by those rules. Some brokers still offer some of these voluntarily. Access to compensation schemes and complaint routes may also change.

Practical note

Higher leverage increases how much can be lost on each move. Be wary of anyone encouraging you to "upgrade" to professional status to trade bigger, or helping you present your experience in a way that is not accurate. See ESMA leverage limits and broker account types.