How to Trade Derivatives and CFDs to make millions
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About this ebook
Have you ever wondered how you can use derivatives and Contracts for Differences (CFDs) to make millions? I am sure you have heard of various forms of trading and how people have engaged in them to become rich. Well, this book provides all you need to know about derivatives and CFD trading.
With the strategies and techniques outlined, you will have a detailed guide on how to start trading with derivatives and CFDs and how to earn millions from it. The book also shows you how to handle risks involved in trading and also how to ensure that you do not suffer losses while trading.
This book is born from detailed research on derivatives and CFDs, observation of trends in trading over the past few decades and my personal proven techniques used trading derivatives and CFDs.
Sir Patrick Bijou
Sir Patrick Bijou is a UN AMBASSADOR and Diplomat, an exceptional level 17 investment banker and a best-selling author. Due to his keen sense of innovation and adaptability, he has always managed to stay on top of recent trends and industry developments, thriving in a career that already recounts decades of expertise.He is an iconic Investment Banker, Tier 1 Trader and Fund Manager and has worked with major banking institutions worldwide. His primary focus has been the debt capital markets, private placements, and structured products. In addition to his wealth of senior banking experience, he has also traded on Wall Street. He is deeply familiar with the international bond markets, commodities, indices, forex, equities and derivatives markets.He is a successful business leader and a remarkable investment banker with a multibillion wealth amassed from his many years on the trading floor and his involvement with start-ups, SMEs, Venture Capital and Private Equity.With a doctorate in economics and over 30 years of experience in the financial sector, he has continually showcased a sense of professional ethics, lateral thinking, and hands-on motivation. Sir Patrick has worked as a consultant and investment advisor for clients as diverse as governments, banking institutions, and corporations. Outside the financial industry, he is a diversified venture capitalist with many exciting start-ups, establishing a diverse and exciting portfolio.“Business success comes from success in developing relationships with the right people,” says Sir Patrick, who values trust, respect and integrity in his life and career. Highly determined to create a lasting professional relationship based on transparency and professionalism, Sir Patrick replies about the importance of learning more about those we contact daily. He is an eclectic writer who lives in the United Kingdom and was born in 1958 in Georgetown and raised in London, England.Many experiences have influenced his diverse writing prowess. Sir Patrick pursued several courses of study at several universities. He declared two majors during his schooling, which included the areas of Business and Economics and finally obtained his doctorate in Economics and International banking.In all these academic studies, the true treasures he took away are not the certificates (though those are very important) but the experiences he had, the people he met, the foods he ate and even the places he stayed.“In truth, I am a citizen of the world, which greatly influences my writing.So, if you are already a fan, I appreciate you. If you are not yet one, then what are you waiting for? Read a book and then read some more. I create characters that resonate with you and infuse life into all I write”.Finding his BooksSir Patrick has written over 34 published fictional and non-fictional books across several genres. He has realised the importance of making it easier for his readers to find his books.www.bijouebook.comwww.sirpatrickbijou.com
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How to Trade Derivatives and CFDs to make millions - Sir Patrick Bijou
Copyright © 2018 by Sir Patrick Bijou
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, photocopying, recording or otherwise, without permission in writing from the copyright owner, and the publisher.
TABLE OF CONTENTS
SECTION ONE: TRADING DERIVATIVES
Chapter One : What Are Derivatives?
Chapter Two : Why Are Financial Derivatives Important?
Chapter Three : Classification Of Financial Derivatives
Chapter Four : What Types Of Derivatives Are Available?
Chapter Five : Trading Derivatives
Chapter Six : How To Trade In Markets For Derivatives
Chapter Seven : How Can Derivatives Be Used To Earn Income Going Into Millions?
SECTION TWO: TRADING CONTRACT FOR DIFFERENCES (CFDS)
Chapter One : Introduction To Cfd Trading
Chapter Two : Analysis Of Cfd Trading
Chapter Three : Cfd Trading Trends
Chapter Four : Trading And Shares Dealing
Chapter Five : Dealings In Cfds
Chapter Six : Losing And Winning In Cfd Trading
References
SECTION ONE:
TRADING DERIVATIVES
CHAPTER ONE
WHAT ARE DERIVATIVES?
A typical mathematics student would define derivate as a value representing the rate of change of a function with respect to an independent variable; that is the amount by which a function is changing at one given point, then it goes on into calculus and differential equations. However, the derivatives I am referring to in this book is far from that. You will see so shortly.
Derivatives, as the word is spelled, is in two parts formed from the word DERIVE and can be literally defined as something which is generated from another source. It is an entity relying on another independent entity.
There are very many ways to define what a derivative or better still, a financial derivative is. However, here, it applies to an instrument which is very important in the financial world-especially the financial world of today. The aim of this book is to make learning easy and fun, and as such, definitions to be adopted will toe this line as well.
Derivatives refer to a contract that derives its value from the performance of an underlying entity. It is a financial security between two or more parties whose value is based on an agreed underlying asset or assets, Indexes or interest rates.
Derivatives are financial in nature. In its financial context, it does not deviate from its original characteristic of being dependent. In this way, think of a derivative as an instrument whose value is tied to another instrument. In other words, derivatives are not a standalone financial instrument. To understand better the way this link is established, think of a horse and cart. The cart is usually linked to the horse, it has to stay linked and remain in its position-that is behind the horse, for the situation to be balanced.
That may not have been a perfect picture but, I hope it helped to create a picture of how things are linked. So, a derivative comes along with another financial item, and that item is what gives the derivative its value.
Now, derivatives are traded in the market. But what is in view when the transaction is made is actually the asset that is backing up or accompanying the derivative.
Complications of a financial derivative
Part of the reason why many find it hard to understand derivatives is that the term itself refers to a wide variety of financial instruments and because of its similarities with other financial related terms like trade by barter, insurance among others, the concept is most often mixed up. Here is a little vital information to keep into consideration;
Any item that is termed as a derivative does not have a fixed amount that is determined beforehand as interest or delivery rate. Its worth is derived from the intrinsic value. To put differently, a derivative is not like a bond. It does not come along with the promise of repaying the amount used in purchasing the derivative.
Derivatives may not be a financial instrument that the average investor wants to try on his/her own, but derivatives can add value to society when used appropriately and in moderation. Regardless, it’s useful to understand them, and know their risks and benefits.
There are other many other misconceptions about derivatives, it will be examined as we go through the study.
What is the usefulness of derivative contracts?
The financial world takes on new dimensions regularly. In the records of financial history derivatives are somewhat a relatively new turn. There are a few reasons why a financial derivative proves useful, but before that, let us take a look at some of the peculiarities of financial derivatives.
Attributes/Peculiarities of financial derivatives
Obtain its worth from intrinsic value:
Derivative instruments do not have a fixed amount, normally, the derivative instruments have the value which is derived from the values of other underlying assets, such as agricultural commodities, metals, financial assets, intangible assets, etc. Value of derivatives depends upon the worth of the underlying instrument and which changes as per the changes in the underlying assets, and sometimes, it may be nothing. Hence, they are closely related.
Over-The-Counter or Exchange traded:
It is quite interesting to know that trading derivatives is not one-sided. This implies that the contracts can be undertaken directly between the two parties (OTC) or through the particular exchange (standardized general and exchange-traded derivative), like financial futures contracts. Compared to tailor-made contracts, the exchange-traded derivatives are easily disposed of and have low transaction costs.
Open to risk:
Although the objective of an investment decision is to acquire required rate of return with minimum risk, and in the market, the standardized, general and exchange-traded derivatives are being increasingly evolved. However, still there are so many privately negotiated customized, over-the-counter (OTC) traded derivatives in trend. They expose the trading parties to operational risk, counter-party risk and legal risk.
This in turn may breed uncertainty about the derivative regulatory status.
It is an agreement:
In the business world, it is not trade if at least two parties are not involved. Derivative is defined as the future contract between two parties. A concord must be met between the two parties involved. It means there must be a contract-binding on the underlying parties and the same to be fulfilled in future. The future period may be short or long depending upon the nature of the contract, for example, short-term interest rate futures and long-term interest rate futures contract.
Specified Stipulated Requirement:
In general, under the derivative contract, the counterparties have specified obligations. Obviously, the type of instrument of a derivative would determine the nature of the stipulated requirement. Looking at this, the requirements would be different. For example, the obligation of the counterparties, under the different derivatives, such as forward contracts, future contracts, option contracts and swap contracts would be different.
CHAPTER TWO
WHY ARE FINANCIAL DERIVATIVES IMPORTANT?
The first reason is for the sake of hedging. A hedge is a position taken in futures or other markets for the purpose of reducing exposure to one or more types of risk. Hedging is a common word amongst investors. This is solely because the future remains largely uncertain, no matter how much we try to predict it. So, to reduce any looming losses in investment decisions, a derivative is employed to hedge or stall the risk of a future downturn.
A perfect example of hedging using a derivative would come in this way. Consider that you have a farm that produces tonnes of potatoes every year. If you were going to cost the amount to be derived from its sales, you might have to consider the on and off times of potatoes sales. That would mean that the total amount to be derived at the end of the sale may not be fixed for each year. To hedge against selling below a particular amount in a year, probably following a war, natural disaster or an outbreak, you could agree with a major buyer that you will part with all or some of your produce at a particular price at the end of a particular period. That is called hedging.
A second reason why derivatives are just about popular these days is that of its usefulness in managing risks. This reason seems similar to the first reason but this has a little twist to it.
Risks are part of investments. They are embedded in almost every kind of investment that is available to be undertaken. Sometimes, the risk from one business is greater than