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
Both of these are not as simple as they sound so I’ll break down just how hard they are.
Profitably trade your own CFD account
There are two things you need to consider here.
- Can you be a consistently profitable trader?
- 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 skewed statistic, because it is taken from all CFD traders 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.
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 of 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 edge 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 bee 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. Not really enough to live on if you are taking such risks.
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.
- Related guide: How to make money on eToro.
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.
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.