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    How To Trade Derivatives And CFDs To Make Millions
    How To Trade Derivatives And CFDs To Make Millions
    How To Trade Derivatives And CFDs To Make Millions
    Ebook141 pages1 hour

    How To Trade Derivatives And CFDs To Make Millions

    By Sir Patrick Bijou

    ()

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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 outline

    LanguageEnglish
    PublisherSir Patrick Bijou
    Release dateOct 14, 2018
    ISBN9781999302337
    How To Trade Derivatives And CFDs To Make Millions
    Author

    Sir Patrick Bijou

    H.E. Sir Patrick Bijou is an Ambassador for THE WORLD PEACE TRACTS and a notable investment bankerIn addition to that, he is senior banking redemption Judge for the International Court of Justice.Throughout the span of his diverse and extensive career, Sir. Patrick has seen many changes throughout the financial industry. Due to his keen sense of innovation and adaptability, he has always managed to stay on top of the recent trends and industry developments, thriving in a career that already recounts decades of expertise.As a registered private banker, analyst, fund manager and trader, Sir Patrick has worked with major banking institutions worldwide, including Wells Fargo, Deutsche Bank, Credit Agricole CIB, and Calyon, and many more. He is particularly focused on debt capital markets and private placements, as well as structured products.In addition to his wealth of senior banking experience, Sir Patrick also traded on Wall Street and is deeply familiar with the international bond markets, commodities, indices, forex, equites and derivatives capital markets.With a doctorate in economics and over 30 years of experience in the financial realm, he has continually showcased a sense of professional ethics, lateral thinking, and hands-on motivation, having worked as a funding and investment advisor for clients as diverse as governments, banking institutions, and corporations. Outside of the financial industry, Sir Patrick became a diversified venture capitalist, with many exciting start-ups under his wing, making for a diverse and exciting portfolio.“Success in business 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 come in contact with daily.Today, he is determined to take the concept to the next level and help others free the full potential of their career.

    Read more from Sir Patrick Bijou

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      Book preview

      How To Trade Derivatives And CFDs To Make Millions - Sir Patrick Bijou

      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 the risk from another business. At other times, it is lesser. This extent of risks involved usually has to do with the returns involved or the industry where such investment exists. A few times, it could depend on how much time is taken to pay the interest on such investment. In all, the lesser the risk, the safer the investment, at least for the risk-averse investors. For the daring ones who can take on bigger risks in the hope of clinching bigger rewards, they often need to manage the risks involved in their investment decision. This is where derivatives come in handy.

      With a derivative, you can cater for the risks involved and still be sure of a safe landing. It is better than having no risk management at all. Derivatives, due to their inherent nature, are linked to the underlying cash markets, the underlying market witness higher trading volumes because of participation by more players who would not otherwise participate for lack of an arrangement to transfer risk.

      Also, financial derivatives which we have termed derivatives all along are important in the area of arbitraging. Arbitrage is a way of making riskless, instant gains from the differences in currency value at a particular point in time in different markets.

      If an individual can change one currency into another before purchasing a third currency and make gain from it rather than changing currency one directly to currency three, then that is called an arbitrage

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