The Complete Guide to Investing in Derivatives: How to Earn High Rates of Return Safely

The Complete Guide to Investing in Derivatives introduces the structure, pricing, and practical uses of financial derivatives. Alan Northcott examines forwards, futures, options, swaps, contracts for difference, and financial spread betting, explaining how these instruments relate to underlying assets and serve different hedging and speculative objectives.

The book follows a progressive learning structure, moving from contract definitions and market history to valuation, trading costs, and strategy selection. Numerical examples and practitioner case studies connect the concepts to trading decisions. Coverage includes margin requirements, marking to market, option premiums, historical and implied volatility, and the sensitivities described by the options Greeks.

Practical chapters examine fundamental and technical analysis, written trading plans, position sizing, stop-loss placement, and trading journals. The strategy discussion gives particular attention to options, including covered calls, put writing, vertical spreads, collars, straddles, strangles, and butterflies. These examples illustrate how different combinations change a position’s potential gains, losses, and exposure to market movement.

This book is suited to readers building a foundation in derivatives and investors expanding beyond direct stock ownership. Its emphasis is on understanding instruments, evaluating trade-offs, and developing a disciplined process. Published in 2011, its brokerage, tax, and regulatory discussions reflect that period. The treatment of leverage and potential losses provides essential context for the return-oriented subtitle.

✅ What You’ll Learn

• Distinguish forwards, futures, options, swaps, CFDs, and spread betting by their contract structure and intended use.
• Compare over-the-counter and exchange-traded markets, including standardization and counterparty considerations.
• Explain how margin, marking to market, and contract specifications affect trading commitments.
• Identify the roles of intrinsic value, time value, volatility, and the Greeks in option pricing.
• Connect commodity, equity, currency, and interest-rate exposures to relevant derivative instruments.
• Compare fundamental and technical analysis within the book’s approach to market selection and trade timing.
• Structure a trading plan around entry criteria, exits, position sizing, and performance review.
• Evaluate the objectives and payoff trade-offs of directional, hedging, and volatility-based options strategies.
• Distinguish market, limit, stop, and stop-limit orders and their execution trade-offs.

💡 Key Benefits

• Broad market orientation: Establishes a common foundation across several derivative markets before readers pursue a specialty.
• Accessible progression: Introduces terminology before moving into valuation and combinations of positions.
• Practical context: Uses worked examples and practitioner experiences to make abstract contract mechanics easier to interpret.
• Integrated decision-making: Connects instrument selection with costs, market analysis, and trading discipline.
• Reusable reference: Includes a glossary and bibliography to support review and further study.

👤 Who This Book Is For

• Beginners to derivatives seeking a structured introduction to contract types, terminology, and market mechanics.
• Stock investors exploring the use of options and other derivatives for hedging or modifying portfolio exposure.
• Developing futures and options traders building their understanding of pricing, execution, and trading plans.
• Independent market learners seeking a practical overview before undertaking more specialized derivatives study.

📚 Table of Contents

• Introduction
• Chapter 1: Derivative Types
• Chapter 2: History of Derivatives
• Chapter 3: Forwards and Futures Explained
• Chapter 4: Contracts for Difference and Spread Betting
• Chapter 5: Choosing an Option
• Chapter 6: Swaps
• Chapter 7: The Underlying
• Chapter 8: The Costs
• Chapter 9: The Good and Bad Points
• Chapter 10: Analyzing the Markets
• Chapter 11: Constructing a Plan
• Chapter 12: Strategies and Techniques
• Chapter 13: Setting Up an Account
• Chapter 14: Tax and Regulation Issues

The Complete Guide to Investing in Derivatives: How to Earn High Rates of Return Safely By Alan Northcott