Key Financial Instruments: Understanding and Innovating in the World of Derivatives (Hardcover)

Edwardes now runs Delphi Risk Management, a London based financial innovation and risk management consultancy and is a director of the London International School of Banking. In previous lives he was a director at Charterhouse, and has worked in the treasury departments of various UK high street banks.

This book was written in the wake of various well known derivatives disasters, including the collapse of LTCM, the Barings debacle and various other abuses, so Edwardes starts off by explaining what derivatives are all about. Then he moves quickly on to talking about idea generation and the importance of creativity. He spends some time going through various products that have been invented almost by accident, or through disaster (the post it note for example is a well known case). This is where his enthusiasm for his subject really comes across.

He uses one of his own products as an example of successful marketing -this was the SCOUT (shared currency option under contract) developed by Midland Bank (now HSBC) in the late 1980s. This garnered terrific publicity and is even now listed in many financial dictionaries. However not a single SCOUT was ever sold. Edwardes says that "as it did not cost a penny to produce and no brochures were printed, in terms of public relations generated the SCOUT may be the most profitable financial product ever launched!".

He dwells on the importance of thinking wherever you are, and of noting your ideas - while listening to a boring conference speaker for instance, or while in the shower. Brainstorming meetings are a complete waste of time of course, as anyone who has ever attended one will attest.

Idea theft is also examined. Edwardes remembers a new futures desk dealer who continually came up with silly ideas. He was told off by line managers for not concentrating on his day to day work. Edwardes was one of the few that listened to the dealers' ideas and would occasionally follow them up. He acknowledges frankly that he "took all the credit and [the trader} was soon fired for not concentrating on the job at hand".

The book goes through the different types of risk, and the tools that have evolved to deal with them in a competent, clear manner, illustrated with useful examples. Most readers of this magazine will be very familiar with these already - this aspect of the book is really geared towards the person on the peripheries of trading, rather than the deeply involved practitioner.

I found the chapter on derivatives for the retail client interesting. It gives examples of attempts to develop retail markets internationally and highlights what can go wrong. He subsequently goes through case studies of break forwards and perpetual swaps to illustrate product development. Later on he examines credit and insurance derivatives.

But the real pleasure of the book is when Edwardes is just expounding on his business philosophy. He uses a lot of quotations and anecdotes from all walks of life, to illustrate his points, which are usually fairly simple but often ignored in reality.

One of his maxims that crops up in several places in the book is "less technophilia -have faith in fools". This is a relatively simple idea, but it is constantly ignored by people who seem to have lost the ability or confidence to think for themselves. Edwardes gives an example of one of his clients who had been offered $0.3 million to close out a cross currency swap with embedded third currency and term options by an investment bank. Edwardes guessed that the figure should have been more like $6 million, and later worked out a value of $6.55 million with a scientific calculator and $6.42 with a computer simulation. The point is that a little common sense and the back of an envelope calculation can actually help a lot.

Edwardes is obviously a man with no shortage of ideas. On his website he lists his thoughts on a wide variety of subjects, including how he would re-structure the BBC (the UK's public broadcasting company) and the art of synchronised swimming photography.

The book is written in a lively entertaining manner, and gives many insights into Edwardes own personality. His website indicates he is a frequent speaker at conferences and as he is a past president of the Toastmasters International public speaking club, I anticipate he is a good value conference speaker and look forward to coming across him on the circuit soon. It will however be difficult to recognise him from his photograph on the back cover, which is of merely half a face, brooding, moody and faintly Hitchcockian.