Book Review > CFDs made simple

The authors are both traders with Jeff Cartridge also being an investor and writer and Ashley Jessen involved in teaching trading strategies. 

This book is an easy to read introduction to Contracts For Difference (CFDs).  It also provides sufficient depth on some of the more advanced aspects of this type of trading to whet the appetite of some readers to learn more.  The information provided in this book should allow the average beginner to commence basic trading in CFDs and also arm them with the knowledge of key risks and sound approaches to adopt.

It starts with some history of when CFDs came into use and compares CFDs to options, futures and warrants.  The initial chapters also outline the potential impact on trading, such as leverage, greed, emotion and attitude.  Reasons for using CFDs are covered, including the potential to hedge a portfolio.

The costs associated with trading are detailed, including finance and margin costs, and also what happens when you are holding a CFD for a company that declares a dividend.  The authors describe the tax treatment of CFDs which boils down to whether you have a businesslike approach to trading (taxable) or are essentially gambling (non taxable).  As with all taxation matters, deciding which camp you fit into is not always a simple exercise.

Getting started and broker types are the next areas that are considered.  The pros and cons of the two types of different CFD brokers (Direct Market Access and Market Maker) are explored.  The authors also outline important steps to take before the first trade and the value in having clear strategy, goals and entry/exit points determined.  They summarise the different types of orders available including Market, Limit, Stop, One Cancels the Other and If Done.

Some of the skills and approaches to CFD trading are then explained such as types of analysis, and scaling in and out of a trading position.  Also the benefit of “back testing” a strategy before implementing, to ensure expectations are supported at least by past performance.  Some of the more technical aspects like how to detect signals, trends turning points are covered only briefly and may leave some readers seeking further reading on how to apply these in practice.

The final chapters of the book outline key success factors and I found these quite interesting.  They provide some good advice on personal traits and skills to develop which include detachment, determination, managing stress, self awareness and fitting your strategy to your personality.

For most people, including this reviewer, who have to date just heard the term CFD, this book will provide an ample introduction and enable an informed decision on whether this type of trading is for them.

Henry Mitchell is a member of the AIA.