Eligible Contract Participant

What is an 'Eligible Contract Participant'

An eligible contract participant (ECP) is a group or individual allowed to engage in financial transactions not open to retail customers. The Commodity Exchange Act outlines the requirements for eligibility, stating that those seeking to become eligible contract participants must have sufficient regulated status or a specified amount of assets. ECPs are usually corporations, partnerships, proprietorships, organizations, trusts, or other entities that have total assets exceeding $10 million.

BREAKING DOWN 'Eligible Contract Participant'

Eligible contract participants include financial institutions, insurance companies, commodity pools and wealthy individuals. These participants are generally classified as professional investors, and are authorized to engage in complex stock or futures transactions such as block trades, structured products, exchanging excluded commodities and transacting on a derivatives transaction execution facility. Becoming an eligible contract participant provides a person or group with a wider range of investment choices and financial options than would be available to a standard investor. This allows for what is commonly known as exotic trading strategies in an attempt to earn superior investment returns.

Unlike ordinary retail clients, individual ECP's can trade with margin. To do so, you need to be an individual who has amounts invested on a discretionary basis, the aggregate of which is in excess of $5 million and you enter into margin trading in order to manage the risk associated with an asset owned or liability incurred, or reasonably likely to be owned or incurred, according to GDAX.com. This also increases trading risks, because trading on margin magnifies both profits and losses. This type of trading is not suitable for retail investors.