Can you make a living from CFD trading?

Yes, you can trade CFDs for a living but you will need a lot of risk capital and a good track record. I’ve been involved with CFD brokers for about 20 years and have seen all types of traders try and make a living from CFD trading. In this guide, I will explain how you can trade CFDs for a living, but also highlight how difficult it can be.

Ways to make a living from CFD trading

The main ways to make a living from CFD trading are:

• Profitably trade your own CFD account
• Trade CFDs with someone else’s money and share the profits
• Work at a CFD broker and manage their exposure

All of these are not as simple as they sound so I’ll break down just how hard they are.

1. Profitably trade your own CFD account

There are two things you need to consider here.

1. Can you be a consistently profitable trader?
2. Do you have enough money in your CFD account to generate a livable income?

Firstly – CFD trading is hard. It’s possible to make money trading CFDs with experience and a thorough understanding of how the financial markets work. But, it’s well known that around 75% of retail traders (private investors) lose money when trading CFDs.

This is a bit of a skewed statistic, because it is taken from all UK reguated retail CFD trader accounts over a quarter and does not factor in small traders losing a little bit and big experienced traders making a lot. But, it is a good reflection of how when most people start trading CFDs they find it unprofitable.

You can see how many people lose trading CFDs and on what platform over time in our broker risk warning rankings.

I’ve been a CFD broker myself and have seen clients that make money on a regular basis, and it’s all down to being professional and disciplined with risk management.

Our guide on how to trade CFDs explains some basic strategies that can help you reduce your risk and potentially become more profitable.

Secondly – do you have enough money? This is really the the most important point because even if you are a profitable CFD trader, if you don’t have enough money in your account, you won’t be able to live off the profits.

As an example, we will assume you want to live on an income of £100,000 a year. In my experience, the most profitable CFD traders who do it on a professional level aim to make around 10% to 20% a year. They do this by running a net flat long/short portfolio of CFD positions that aims to outperform the market.

That basically means they are long stocks they think will go up and short stocks that they think will go down. It is essentially what hedge funds do, i.e. hedge against overall market moves and aim to make money no matter what is happening in the underlying market.

If you want to generate £100,000 income from CFD day trading (using the lower end of our profit expectations), you will have an account balance of £1,000,000.

So, if you only have a CFD account with £20,000 in it, even if you make 50% profit a year, that’s still only an income of £10,000 a year. It’s not really enough to live on if you are taking such risks.

Plus you will have to pay tax on your profits. However, if you trade via financial spread bets instead of CFDs, your profits will be exempt from capital gains tax.

2. Trade CFDs with someone else’s money and share the profits

There are a few ways to do this:

• Be a hedge fund manager
• Get a funded account
• Do some social trading

Hedge fund managers – these are investment professionals with highly tuned trading strategies.  CFDs were actually originally an institutional product that hedge funds used to short the market. They are also a good way for funds to buy up large positions in companies without the market finding out.

Hedge funds that trade CFDs usually charge an investment fee, then a performance fee. It is known as the 2&20. They would earn 2% on the size of money invested and get a 20% cut of the CFD trading profits. Nowadays the percentages are much lower because of competition.

Unfortunately, being a hedge fund manager is not a possibility for most traders, as one of the main skills required is raising money from investors, as well as having a profitable trading strategy.

Get a funded account – prop firms are becoming more and more popular, offering competitions to fund traders. However, most are just demo accounts that earn money from traders wistfully thinking they can become hedge fund managers. These are best avoided.

Funded trader programs make money when you lose because they charge an entry fee to take part and operate an essentially updated version of the B-Book where they do not hedge client traders. You could say that they are essentially big ponzi schemes, as the payouts on sucssefull funded accounts are paid out from the revenue generated from new clients signing up. As opposed to from client commission or un-hedged positions.

Social trading or copy trading – is where you trade as normal on your account and other traders automatically copy your trades. This is sort of like being an unregulated hedge-fund manager and is a bit of a grey area. Technically, you are not trading other people’s money, so you don’t need to be regulated, but if you lose money so do the people that are following you. With copy trading on eToro for example, you earn money based on how much money is copying your CFD trades.

It’s probably the most practical option for profitable traders who want to try and earn a living from CFD trading. However, it may not be around forever, if the regulators clamp down on it, so make hay as the sun shines, as they say.

3. Manage a CFD broker’s book market exposure

The final way to trade CFDs for a living is to be a risk manager or head of desk at a CFD broker, where you are responsible for managing the exposure of a broker’s underlying positions to the market.

You are essentially waiting for your clients to be net long or short a market (like EURUSD). When clients become overly bullish or bearish an asset, a broker will have to hedge it’s exposure in the underlying market instead of having an unhedged book.

A small amount of net exposure is manageable but too much will breach their risk limits in case of a sudden and volatile market moves.