Think like a Professional Trader

After the ESMA restrictions, concepts of professional trader, client and investor became really popular online. In a nutshell, the restrictions affected retail customers who did not meet certain requirements. We will not discuss the conditions, but we will concentrate on the professional trader's way of thinking, in terms of skills that, if you acquire, will cover the requirements of re-categorization as a professional trader.

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If you already have a real account with Varchev Finance or another broker and would like to know more about our conditions for professional traders:

One of the main reasons for ESMA to ask for professional and non-professional categorization is the misunderstanding of the risk associated with the trading of CFDs /Contract for difference/. In particular, the risk associated with the use of a credit shoulder by traders while trading with financial instruments.

For example, standard retail traders use leverage 1: 100 to 1: 500 for Forex trading. This means that, for example, an account with $ 1000 deposited will have the opportunity to open a deal with a volume of between $ 100,000 and $ 500,000, respectively to the account leverage. For example, if the USDJPY currency pair increases or decreases by 1%, then a $ 100,000 / $ 1000 account with  1.00 lot size  with a leverage of 1: 100, the position will take $ 1000 margin / there will be $ 1000 profit or loss, depending on whether we are in a buy or sell position and in which direction the forex pair is moving.

As evidenced for a $ 1000 account, this is a very high-risk deal. Here comes one of the main differences in the thinking of professional and retail traders - Risk Management. Professional traders never take big risks. They stock to to a certain strategy and always know in advance the maximum they may lose in a particular deal. Thus, if a professional manages a $ 1000 account, he will not open a position of more than 0.01 lots that would be equivalent to $ 1,000, and with a potential 1% currency pair move, the loss would be $ 10 - was tolerable for the size of the account.

Do not hurry to take your calculators out, but rahter focus on the principles of how the market works. For all financial classes, different mathematics work, but the risk management principle is the same. The rational risk we assume in a single deal should not exceed 3% of our entire account, with more conservative traders following a rule of maximum loss of 1% of their trading account.

In addition to risk management, another distinctive feature for professionals is that they follow a disciplined strategy of trading and plan. This includes fine-tuning on the basis of certain criteria and monitoring the big picture of the financial markets. For example, unprofessional traders crawl all time frames and make random solutions based on backups, resistances, indicators, paid or free signals and a bunch of other confusing systems. In contrast, a professional trader has a systematized marketing approach and principles that he obeys blindly. Here is the time to mention that nonprofit traders often earn large amounts in proportion to the size of their trading account for a short time. This indicator is not good, because behind many of these profits there is too much risk. For traders, they earn evenly and calculate their earnings as average yields within a year of two or more.

If you decide to follow the two tips described, namely a disciplined trading plan of a mathematically accurate and calculated risk management, you are getting closer to the coveted goal - a professional trader. When you are familiar with the risk and nature of traded financial instruments and have a real trading account, what you probably do not get is experience, persistence, the right mental attitude to deal with losers and profitable deals.

In conclusion, we can not forget that professional traders perceive trading in the financial markets as a process of recurring events, while retail traders perceive it as money, a personal challenge even gambling. Professional traders have a statistical advantage in the markets and seek regular, repetitive profits, striving to take small to moderate risk. Of course, there is no trader that will not lose / if someone claims there are only profitable deals or no more continuous drawdown probably no experience or lying /.

Read more:

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• The efficient market hypothesis – reality or outdated
• Investor Strategy for Gold Trading
• Differences Between Stocks and Bonds