Why It Pays to be a Professional Trader

Why do everyday traders often make the switch to the "professional" side? The answer is complex but typically has to do with career goals, a love of trading, better trading tools, lower commissions, fewer fees, much higher leverage, low margin rates, blazing-fast trade execution times, and favorable tax treatment. Indeed, the major online trading platforms are a big part of the built-in advantages for pros, some of whom trade for their own accounts and many of whom work part-time, at most.

Faster Trade Execution

Getting an order filled can take anywhere from a fraction of a second up to an interminable minute or two. Sometimes, in non-liquid markets, two minutes might be a fast execution. If there's no one on the other side of the trade, then your order might never get filled and you end up having to cancel. That's a problem even for professionals, but when there is a willing participant on the other side, speed will be lightning fast. Platform execution is not a perfect science and slow trades are a common complaint of casual traders all over the world. But professionals seldom have to endure slow-poke trade executions because they are, after all, preferred customers.

Low Margin and High Leverage

Individuals who trade for their own accounts, and with their own funds, have to qualify in order to get any amount of margin. Long-time users with good credit can get decent margin rates with most of the major platforms. Low margin rates translate directly into high leverage, or the ability to make quite large trades using small amounts of trading capital.

Contrary to anecdotal legends among amateurs, using as much leverage as possible can actually reduce overall risk and is about the only way professionals prefer to work. That's because, when properly used, high amounts of leverage can help traders put less of their bankroll at risk and protect their cash by putting less of it at risk on a given trade. In any case, it's a fact that professional traders take advantage of whatever amount of leverage they can get, and use it to lessen their total risk. Some pros work in the options market, or buy and sell warrants, to magnify the leverage offered by the platform they use.

Low Commissions and Fees

Professional traders pay smaller margin rates and have access to higher leverage. Brokerage platform owners know from experience that professional traders make something like 15 times as many trades as casual traders. Additionally, the average trade size, in dollars, is about four times as large for a pro compared to a non-pro. The reason is simple: professional traders are often using funds from hundreds of clients simultaneously, thus have larger bankrolls and tend to make more trades per day.

From the platform owners' view, professionals are "regular customers," who get special treatment in any business. Two key perks for preferred traders are rock-bottom commission charges and low usage fees. Often, monthly and annual platform fees are waived altogether, and pro traders always enjoy the lowest-tier of the commission schedule. It's the brokerage's way of rewarding the high-volume activity and high-dollar trades that the professionals execute, day in and day out.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.