Introduction 1
About This Book 2
How to Use This Book 3
Foolish Assumptions 3
How This Book is Organised 4
Part I: Getting Started 4
Part II: Touring the CFD Marketplace 4
Part III: Keeping Risk Under Control 4
Part IV: Trading Strategies 5
Part V: Knowing Where You’re Going 5
Part VI: The Part of Tens 5
Icons Used in This Book 6
Where to Go from Here 6
Part I: Getting Started 7
Chapter 1: Deciding Whether CFD Trading is for You 9
Grasping the Ground Rules 10
So what are CFDs, anyway? 10
CFD providers 14
Coming to Grips with Trading Factors 15
Understanding commission charges 15
Paying margins 15
Employing leverage 18
Considering the effect of delta 19
Pulling it all together 20
Managing Your Trading 21
Understanding the market 22
Controlling your risk and managing your money 23
Developing your trading plan 24
Choosing your software 25
Record-keeping 26
Chapter 2: Setting Yourself Up for Success 27
Choosing a CFD Provider 27
Understanding how the different providers operate 28
Considering other points of differentiation 32
Placing Orders 33
Market orders 33
Stop orders 33
Contingent orders 34
Stop orders versus contingent orders 35
Limit orders 35
Requotes 36
Guaranteed stop loss orders 37
If-done orders 37
One cancels other orders 37
Chapter 3: Making the Most of CFD Trading 39
Examining Long Versus Short Trading 40
Benefiting from a price that goes down 40
Understanding that FX trading has built-in short trades 42
Recognising the Costs and Benefits of Doing Business 43
Exploring the Pros and Cons of Trading in Different Markets 43
Coping with Market Trading Conditions 44
Getting fancy: Hedging your bets 45
Coping with FX volatility 46
Wiggle room: Allowing the market to move 49
Dealing with slippage and gaps 49
Part II: Touring the CFD Marketplace 53
Chapter 4: Exploring Share CFDs 55
Understanding How Shares and Share CFDs Differ 55
Accounting for Dividends and Other Corporate Action 56
Dividend payments 57
Share bonuses and splits 58
Financing Charges 59
Dealing in Foreign Share Markets 60
Trading Over Different Time Frames 63
Trading over the longer term 63
Trading over the short term 64
Capturing trend moves 65
Dealing with Different Time Zones 68
Checking out sympathetic markets 68
Making use of stop and limit orders 69
Chapter 5: Taking on the World of Foreign Exchange 71
Understanding Foreign Exchange CFD Trading 72
Grasping FX terminology 72
Starting small 74
Settling your trades 74
Dealing with a 24-Hour Market (and Getting Some Sleep) 75
Building in stop orders 75
Placing profit target orders 77
Charting Methods for Short- and Medium-Term Trading 77
Short-term trading 78
Medium-term trading 79
Exploring the Impact of Currency Differentials 81
Following the Big News: Data Releases 82
Chapter 6: Following the Big Guns: Index CFDs 89
Understanding the Basics of Index Trading 90
Getting a Grip on Index CFDs 91
Understanding price spreads 92
Taking advantage of commission-free trading 93
Following market movements 94
Examining sector trades 94
Trading Local Index CFDs 95
Taking care when volumes are low 95
Putting in stops 97
Trading Foreign Index CFDs 98
Timing your trades 98
Knowing which currency to use 99
Guarding Against Bad News and Market Catastrophes 100
Short- and Long-Term Trading 102
Short-term strategies 102
Long-term strategies 102
Chapter 7: Venturing into Commodities and Interest Rate Products 105
Understanding the Terminology: What are Commodities, Anyway? 106
Agricultural commodities 107
Energy commodities 109
Metals: All that glitters 111
Getting Ready to Trade in the Commodities Market 113
Interest Rate Products 116
Following Important Economic News from Around the Globe 119
Part III: Keeping Risk Under Control 123
Chapter 8: Managing Risk is Your Key to Trading Survival 125
Keeping a Lid on Leverage 126
Using Stop Loss Orders 128
Stop loss order hybrids 131
Guaranteed stop loss orders 134
Reducing Risk on Foreign Exchange CFDs 137
Spreading the Load with Diversification 139
Gaining Exposure 140
The Perils of Overconfidence 141
‘I’m better than average!’ 141
‘I don’t need to be conservative’ 141
Chapter 9: Position Sizing 143
Basic Ways of Integrating Position Sizes and Stop Losses 144
Position Sizing Using the Fixed Dollar Model 145
Applying the Fixed Percentage Model 146
Getting Position Sizing Right 149
Working with an ATR Indicator 150
Part IV: Trading Strategies 153
Chapter 10: Making Informed Decisions Based on the Economy 155
Understanding the Economic Impact of Interest Rates 156
Borrowing as a source of funds 157
Understanding the link between inflation and monetary policy 158
Turning an Eye to Economic Growth 161
Looking at the Employment Link to the Economy 164
Basic Fundamental Analysis 166
Exploring company earnings and forecasts 167
Using some simple ratios 170
Chapter 11: Understanding Trading Methods 175
Trading Methods and You 176
Trading Over Different Time Frames 176
Understanding Short-Term Trading 177
Moving average crossover 177
Using swing techniques 178
Looking at Longer-Term Trading 186
Making Friends with Trends 187
Moving averages 187
Using trend lines 190
Scaling and pyramiding 191
Chapter 12: Taking Lessons from Hedge Funds 195
Hedge Funds: The Traditional Approach 196
Adopting a Long/Short Balance 196
Wising up to weighting 197
Using beta 198
Incorporating Different Asset Classes 199
Looking at short-term time frames 200
Using longer-term time frames 201
Advanced Strategy Concepts 201
Understanding pairs trading 202
Tapping into index stripping 205
Chapter 13: Ah! Technical Analysis 207
Using Technical Analysis to Predict Patterns 208
Identifying Trends 209
Applying Useful Indicators 212
Getting the most from moving averages 212
Marking the lowest price 214
Stopping and reversing a trade 216
Spotting the average range 217
Getting into Swing Trading 219
Understanding General Rules on Technical Stop Loss Points 222
Stirring the Software Pot 223
Chapter 14: Charting CFDs with Software 225
Introducing Charting Software 226
Choosing the Charting Software That’s Right for You 228
Incorporating Indicators 232
Writing Your Own Indicators 233
Top Ways to Scan 235
Part V: Knowing Where You’re Going 239
Chapter 15: Analysing Your Trading Behaviour 241
Avoiding Common Trading Pitfalls 242
Personalising the market 242
Hoping and waiting instead of taking action 243
Starting from scratch instead of adjusting 244
Forgetting to monitor what you already have 245
Closing out too early 246
Asking Yourself Whether Working at Home is for You 246
Fighting the Fear of Losing 247
Chapter 16: Developing a Trading Plan 251
Putting First Things First 252
Getting Started 253
Evaluating an example plan 253
Understanding why you need a trading plan 254
Keeping things in check 255
Looking at Your Individual Needs 256
Working out what you want from your trading 256
Setting realistic goals 258
Using your individual needs to create your trading plan 260
Finetuning Your Trading Plan 261
Backtesting 262
Paper trading 263
Balancing Risks with Your Goals 264
Chapter 17: Tracking Your Progress 267
Monitoring Your Existing Trades 267
Measuring Your Financial Success 269
Keeping a Trading Diary 271
Making the most of Microsoft Excel 273
Using off-the-shelf software 275
Part VI: The Part of Tens 277
Chapter 18: Ten Common Mistakes Beginners Make When Trading CFDs 279
Being Unfamiliar with the Product 279
Being Careless When Executing Trades 280
Forgetting about Outstanding Orders 280
Opening a Position without a Stop Order 281
Trading Too Often 281
Failing to Keep an Eye on the Market 282
Trying to Be Too Big Too Fast 282
Failing to Preserve Your Capital 283
Confusing Paper Trading with Real Trading 283
Blaming Someone Else for Risky Trades Gone Bad 284
Chapter 19: Ten Lessons for Dealing with Leverage 285
Leverage Doesn’t Have to Mean Massive Positions 285
Just Because You Can Doesn’t Mean You Should 286
Keep the Leverage Conservative 286
Different CFDs Suit Different Leverage 287
Let Your Account Have Plenty of Room to Breathe 287
Know What You Stand to Lose 288
The Long and Short Advantage 288
A Close Stop Doesn’t Make Over-leveraging Alright 289
Even Small Amounts of Leverage Make a Big Difference 289
Leverage Your Returns and Your Volatility Too 289
Chapter 20: Ten Ways to Plan Your Trades 291
Spend Time Building Your Strategy 291
Write Down Your Plan 292
Your Plan Helps in Uncertain Conditions 292
Record Your Results 293
If You Don’t Know Your Stop Loss, You Don’t Know Your Risk 293
Be True to Your Plan 294
Test All New Set-ups 294
Don’t Spend All Your Time on Your Entry Plan 295
Include Targets as Part of Your Plan 295
The Plan Tells You When to Pay Attention and When to Ignore the Market 296
Glossary 297
Index 311
