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This is a difficult question to answer and depends on many factors such as account size, trade size, chosen leverage and many other critical factors. Also important to how much a CFD trader will earn is their risk appetite, experience and knowledge of the workings of contracts for difference. There are many different trading strategies that can be employed for CFDs, each with their corresponding risks and rewards. It is realistically possible to make a living from CFD trading if you are prepared to learn and understand the risks.

The most obvious way that CFD brokers make money is through spreads. Spreads are the gap between the ‘buy’ and ‘sell’ prices quoted on a market, where basically the broker takes part of the difference between the actual market price and the quoted price.

Another way in which CFD platforms and brokers make money is on commission – a small percentage of the total trade will be taken by the broker as a fee (or commission). As CFD platforms have a wide range of providers forming a highly competitive market for your trading dollar, commissions are becoming rarer as CFD platforms slash their fees to remain attractive.

Many CFD platforms and brokers offer finance as part of their offering, especially for transactions traded on margins. Of course this finance is typically marked up and can form a great source of revenue for CFD platforms.

What many traders and investors may not realise is that CFD platforms and investors can be players in the market themselves, and often trade transactions to hedge or help mitigate their liabilities that may otherwise occur because of a client trade. This can make a big difference to the profit and loss of a CFD broker.

These are not the only way CFD brokers make money, but give you a good insight into some of the options they have available.

There are many ways CFDs can be used for trading – ultimately that is what contracts for difference are used for. There are also many strategies available for trading contracts for difference, with adjustable leverage to suit the risk level of any astute investor.

To calculate the profit you have made using contracts for difference, consider this simple example. The closing price for your position was $23.40, and you opened the position at $21.40. The size of your position was 1000 CFDs. So you multiply the size of your position (1000) by the difference between the closing and opening price ($2), so 1000 * $2 = $2000 profit. Don’t forget to subtract any applicable commission fee or overnight funding charges.

CFD do not expire – a trader can hold both a short and long position for as long as they want. Bear in mind that there will be financing charges to hold this position. It’s rare that a CFD position is held longer than 4 – 6 weeks due to these financing charges.

CFDs conceptually are fairly straightforward in that they are agreements to settle the price difference between open and close of the contract. Options are slightly more complex in that they are the right to buy an asset at an agreed price at a future date. Though CFDs and options sound relatively simple factors such as leverage and market volatility can make them more complex in practice.

As a financial instrument they can be heavily leveraged and as such there is risk that you could lose money, even more than you put in in the first place. CFDs conceptually are a fairly simple: they are simply a settlement for the price difference between the opening and closing price of your position. It’s the leverage factor that really increases the risks and rewards associated with them.

In Australia, typically, for the purposes of proving to the Australian Taxation Office (ATO) that you are a ‘Trader’ not an ‘Investor’, recent court cases in Australia have considered a registered business name and Australian Business Number (ABN) as part of this. So, the term ‘ self-employed’ in this consideration is a bit loose, you are either a ‘trader’ or an ‘investor’. A ‘trader’ would be what most people would consider as self employed.

Yes, you can. CFD trading has a high level of risk that is inherent in the high levels of leverage that are available through the instrument. CFD trading is not appropriate for everyone, you need to understand the risks involved before diving in. It’s definitely worth trying a demo account through an online provider such as Plus 500 to see if it is something that suits your risk profile and temperament.

CFD’s are not designed to be long-term instruments, they are normally for short term speculation on long and short positions. Depending on the type of CFD you are holding, they can incur fees the longer they are held. For this reason, it’s rare that a Contract for Difference is held for longer than 4 to 6 weeks.