
Financial instruments are indispensable for the world of trading. But how much do you know about them?
You can't discuss trading without mentioning financial
instruments. At the end of the day, people trade them day in and day out.
So, let’s jump into the concepts of financial instruments
and see what they mean, how they work, and, more importantly, why you need to
know as much as possible about them.
Get ready, because we will prepare an entire series of
articles on financial instruments!
Financial instrument – a brief overview
Marketbusinessnews.com defines a #financial instrument as a
contract established between parties, acting as evidence of ownership of an
asset (in shares, currencies, commodities, or others).
Further examples of financial instruments include futures,
options contracts, securities. The list doesn’t end here, as financial
instruments can consist of a more comprehensive array of things, such as cash,
deposits, all kinds of loans, and more.
People can trade financial instruments and exchange them depending on their mutual goals. For this reason, we see financial instruments as a package of capital that we give value to, and we trade it.
Investopedia.com expands the definition from
marketbusinessnews.com, noting that financial instruments can be either real or
virtual documents representing a legal agreement involving any kind of monetary
value.
Furthermore, financial instruments can be divided in three,
by asset class: equity-based, debt-based, and foreign exchange instruments.
Equity-based financial instruments grant ownership of
assets, like stock options or equity futures.
Debt-based financial instruments represent loans that
investors make to owners of assets. Short-term debt-based financial instruments
have a duration of a maximum of a year. They include complex elements such as
commercial paper and T-bills*. Long-term debt-based instruments can last even
for decades and include bonds, bonds, futures, or options.
*T-bills are short-term U.S. government debt obligation with
a maturity of maximum a year. T-bills are backed by the Treasury Department.
Foreign exchange instruments act as unique type of financial instruments, with different subcategories of each instrument —more on this complex type of financial instruments in a future post. Just make sure you stay tuned to CAPEX.com Featured Articles section!
A different classification of financial instruments
Getting back to marketbusinessnews.com, we learn that experts
split financial instruments into derivative and cash instruments.
Derivative instruments
Derivative instruments draw their value from at least one
underlying entity, such as assets or even interest rates. Essentially, people dub
them as derivatives because their performance is strictly connected to other
entities.
CFDs
(contracts for difference) fall into the derivatives category of financial
instruments, as they are linked to securities like #shares, #indices, or #cryptos.
Here at CAPEX.com, you get the opportunity to try out trading on more than
2.100 CFDs, grouped in 8 asset classes. Go here to discover
them!
Cash instruments
The markets value cash instruments directly, without drawing
their value from a second party. Securities, deposits, or loans all fall into
the cash instruments category. Special mention for securities - these are investments
traded on secondary markets such as the New York Stock Exchange, according to
thebalance.com. We will dedicate an entire article to them since they can often
be misunderstood or less explained.
Why so many different types of financial instruments?
Before concluding the first part of our series on financial
instruments, you probably want to answer the question from above.
As we explained, the markets get flooded continuously with numerous types and categories of financial instruments, because investors or traders need a diversified list of options to choose from. Some of them favor safer investments, such as bonds, while others prefer riskier solutions, like stocks. At the end of the day, the more choices we have, the better.
Reaching the end of our article, we can only hope you learned
some things about financial instruments and their essential role in the
markets. Again: keep a close eye on CAPEX.com to follow our series
Sources: marketbusinessnews.com, investopedia.com,
thebalance.com
Utilizatorii/cititorii nu ar trebui să se bazeze exclusiv pe informațiile prezentate aici și ar trebui să facă propriile lor cercetări/analize, prin citirea cercetărilor de bază. Conținutul acestui document este generic și nu ia în considerare circumstanțele personale ale fiecărui individ, experiența de investiții sau situația financiară actuală.
Prin urmare, Key Way Investments Ltd nu va accepta nicio responsabilitate pentru eventualele pierderi ale traderilor datorate utilizării conținutului sau a conținutului informațiilor prezentate în acest document. Performanțele trecute și previziunile nu sunt indicatori fiabili ai rezultatelor viitoare.