All in a day's work: £1,900 profit despite the bear market

In the attic of Mitch Mosley's country cottage, in amongst the pictures of and drawings by his two young daughters, there are a dozen Dunhill butts in the ashtray by 10.30am. "They're fucking about with the Barclays share price," he'll be fulminating, or "GUS shares are too high, I'm not having that."

In David Eaton's Fulham loft, piano music playing softly in the background, he may be on to his second glass of water by 10.30am. On a computer screen to his right, the winnings from his bet against the Wyevale Garden Centres share price will be gently ticking higher.

The pair maybe poles apart temperamentally, but they are the new faces of retail investment. The myth is that day traders and other short-term private investors were wiped out by the bursting of the technology bubble.

True, many have drifted off nursing horrible losses. But the growing popularity of contracts for difference (CFDs) – an easy-to-use derivative product which allows investors to profit from both rises and falls in share prices – means that those who remain are often making a tidy sum from the market.

Mr Eaton is even going to start investing his pension through CFDs, cocking a snook at those who have seen the bear market maul their long-term savings.

A former oil trader, he makes his living from CFDs, heading up to the office in time for the market opening at 8am and leaving it decisively behind at 4.30pm in time for an early dinner with his young family. He's been doing it full time since "finding ourselves in Somerset and unable to get a job that pays more than £20,000".

Temporarily back in London, Mr Eaton makes maybe 20 trades a day, and pays income tax rather than capital gains on his earnings.

"The first thing I think is not how much I could win on a trade, but how much I could lose," he says. "I have a very high stop-loss. If I'm wrong, I'm wrong and I cut my losses before they get past £300.

"All the small winners and losers cancel themselves out. You make the money on the one in eight, the £1,000-plus winners."

A CFD gives traders an exposure to the stock market that is many times the value of the money that needs to be deposited with the CFD broker. Their popularity has ballooned because it is a way of playing the market without having to pay stamp duty.

Some estimates suggest more than 20 per cent of the volume of shares going through the London Stock Exchange is from brokers hedging CFDs.

Mr Eaton argues CFDs are the best method of short-term trading. "There is no stamp duty to pay, you can go short, and you get leverage because someone is lending you the money. It is also just a lot easier. There is no paperwork. I have more trouble getting together the certificates and dividend paperwork for the three or four shares I own than for 2,000 CFD trades."

Where Mr Eaton's trading is actually his livelihood, Mr Mosley's is more in the manner of a hobby, albeit an occasionally lucrative and often addictive one. And in stark contract to Mr Eaton's spartan loft overlooking west London, activity in Mr Mosley's corner of his cluttered attic is about as frenetic as sitting at a desk can get.

There is the clicking of share price graphs, the coloured flickering of the London Stock Exchange trading screens, the white noise of Bloomberg TV, and the man himself on the phone ordering his broker to "get two of Aviva at 34" or some such.

Mr Mosley has also now put in a high-speed telephone link at work – he runs the family flooring firm and a motorcycle shop – so he can keep an eye on his positions and make sure he is not losing money while he is out. He has long been able to make money while he is out. His biggest coup was a £6,000 gain on Colt Telecom in 2001, through a CFD set up while he was on the phone to his broker from a Blockbuster video shop.

"The first share I bought was Reuters in 1999 – I had never touched a share in my life – and it went up 40 per cent," he said. "Then I bought Harrier, a tip that was on the telly, and made a stupid amount of money in a week. I wasn't really trading, just buying stocks. Once I'd lost all the money I had won, I went to see a guy who knew about charts, and the rest, as they say...."

The charts he speaks of are not astrological. They are share price charts from which technical analysts can divine levels at which share price moves might reverse, based on previous peaks and troughs, when investors may be tempted to buy or sell. They can guide investment decisions for the medium term as well as the very short term. Mr Mosley is often in and out of a share two or three times in a morning, banking several hundred pounds on a penny or two move in the share price.

Mr Eaton often trades shares of companies despite having a hazy or even no knowledge of what they do. "I don't know anything," he said. "I don't ever have the news on and I don't read the Financial Times. If something is going on, 1,000 people will always know it before I do anyway," he says. "Leave that sort of trading to the boys at Goldman Sachs." There are as many different strategies as there are traders. Fundamental analysis of company accounts has served the ubiquitous Simon Cawkwell – the bear raider known as Evil Knievil – well over many years.

Others chase the latest bar-room gossip, seeking and repeating rumours of takeovers or profit warnings, spending their day in an endless round of phone calls that will almost certainly include one from "Jimmy from Glasgow", another of the great characters unbowed by the bear market.

And there are the computer geeks who can spot the automated trading strategies set up for the computers of the big hedge funds, which may buy small parcels of shares at given intervals. The best geeks of all can make money by studying the Stock Exchange order book and beating the computers at their own game.

When The Independent visited Mr Mosley last week, he was having a mixed morning. He was betting on falls by shares in Reuters and WPP, which weren't going down, and Barclays and Aviva, which mostly were.

At different points he was variously up £1,500 and down £200 before closing the day with a whopping £1,900 profit from the £10,000 deposit with his broker, GNI. Since then, the gains have grown further, as his bearish outlook stood him in good stead this week.

"I've missed trains for this," he says. "It is addictive because where else can you make this sort of money so quickly? There is lap dancing, I suppose, but I'm not too well qualified for that."

The jargon

A contract for difference is so called because it is a legal contract with a broker. He agrees to pay you the difference between the price at which he buys shares on your behalf and the price at which you tell him to sell them. If there is a loss, you agree to pay him the difference. At no point do you own the shares, just an interest in the gains or losses from those the broker has bought in the market.

You do not have to put up all the cost of the shares, as you would if you were buying or borrowing them directly. Deposits can be as low as 10 per cent, so a £10,000 account with a CFD broker could allow you to speculate on £100,000 worth of shares.

If you were trading shares directly, you would need to be a short seller to profit from stocks going down. Direct short selling involves borrowing shares to sell and returning them with shares bought at what you hope will be a lower price. Selling and buying back a CFD is as simple as buying and selling one. The explosion of short selling during the bear market has mainly been done using contracts for difference.