AssetsWhat Are The Assets Of Financial Instruments?
Financial instruments are the assets that can be traded on the financial market. Financial instruments provide an efficient flow of capital throughout the world’s investors. Mainly, there are two types of financial instruments in the financial market, and they are as follows:
Primaries: Primary financial instruments allow you to invest by buying a good, such as shares, bonds, currency, a commodity, while the value of which does not depend on other financial instruments.
Derivatives: Derivative or Derivatives are contracts whose value depends on the performance of an underlying asset which is almost always a primary instrument.
Therefore, we can state that the primary financial instruments are created to invest by collecting resources and not (as is the case for derivative instruments) to speculate and handle the risk.
However, there is still one question: the assets of all financial instruments are based on what?
A share, in finance, is a representation of a share in the ownership of a joint-stock company. The holder is said to be a shareholder, while the entirety of shares of the company is said to be equity. It may be considered in all respects as a form of investment by the holder in the form of a financial instrument.
The advantage of issuing shares to the issuing company is the recovery of financial liquidity required for any investment, while the holder is entitled to receive a share of the company's profits known as dividends, but above all, he/she can earn from selling shares, following an increase in its value.
The price of each share is officially quoted and regulated by the regulated market of your country.
Compared with the obligation, it is considered a form of investment with greater financial risk as it is subject to stock market quotation, therefore with a variable value over time.
You can invest on a share by buying it when we think its value will increase. If we want to speculate on our forecast that its value will decrease, we can’t act directly on the share, but we can activate a derivative by betting that its value will decrease.
Currency is an exchange unit of a particular country that is represented in the form of currency. To invest in currencies, it required exchanging a pair of currencies (examples: EUR/USD, USD/JPY, etc.) A currency pair is made up of the base currency and the quoted currency. In a practical case of EUR/USD, the base currency is the first before the slash, i.e. the euro, and always has a value of 1. The quoted currency is the second after the bar, in this case, the US dollar for which we see the price moving.
All currency pairs are divided into three macro groups: Major, Cross or Exotic.
To find out more about this currency, read the articleABOUT FOREX
The commodity is a basic good in commerce that is very much in demand regardless of who produces it. Whereas commodity market is a marketplace for buying, selling and trading commodities and there are currently 50 major commodities market around the world.
Here are the commodities that are traded on the market:
- Agricultural products (Sugar, Coffee, Corn, Soy etc.)
- Energy products (Petroleum, Gas, Ethanol, etc.)
- Precious metals (gold, silver, platinum etc.)
- Industrial metals (zinc, aluminium, etc.)
- Others (cotton, rubber, palm oil etc.)
A commodity must be easily stored and conserved over time, that is to say, not to lose its original characteristics, and above all standards, it has to be easily negotiated on international markets. Commodities are often used as futures.
Bonds are a credit that represents a portion of debt a company or a public body gets to fund itself. It guarantees the buyer a capital repayment plus an interest rate and is, therefore, a very secure instrument.
Bonds are issued to obtain, directly between savers and under more favourable conditions than those of bank loans, the invested capital. The advantage for the issuing company bonds comes from interest rates that are usually lower than in the banking sector, while the investor benefits from a higher rate than a liquidity investment, with the possibility of reselling it by reselling in the secondary market.
The interest is the interest paid during the existence of the title: it may have a quarterly, semi-annual or annual frequency. Interest can be fixed (pre-determined) or variable. Often, to encourage subscription, the issue is made equal, i.e. the nominal value (that is, the value that will be repaid at maturity) is greater than the subscription price (which is what you pay to buy the title): in this way it increases the performance.
To secure this instrument, the law provides that bonds may not be issued for an amount greater than the share capital of the issuing company.
Equity indexes are important indicators of the global stock market and finance trends.
An index is a value attributed to a set of securities of a given stock market, or belonging to a particular sector, whose performance is considered to be in its overall average.
Here is a list of the most well-known and influential indexes of world-class stock markets
-Dow Jones (measures the 30 best wall street titles)
-Nasdaq (Measures the major American technology companies)
-S & P500 (measures 500 American companies with the largest capitalization)
- Euro Stoxx 50 (measures 50 major Eurozone companies)
- Dax 30 (measures the 30 largest capitalization stocks in Germany)
- FTSE 100 (measures the 100 highest capitalization stocks in England)
- CAC 40 (measures the 40 largest capitalization stocks in France)
- IBEX 35 (Measures 35 Largest stocks in Spain)
- FTSE MIB (measures the 40 highest capitalization stocks in Italy)
- Nikkei 225 (measures the 225 largest capitalization stocks in Japan)
- Hang Seng (measures the 30 highest capitalization stocks in Honk Hong)
the Analyst's answerJean Grossett - Financial analyst
In this series, it talked about the assets of financial instruments where we talked about shares, commodity, currency and bond. It is important to understand that while trading and investment on shares, commodity and currency can be made on a smaller scale and is the perfect way of investing for new traders. Bonds require a much higher level of investment and expertise to trade.
the Manager's answerRobert Danvil - Investment Manager
Financial instruments can be the real or virtual document that can be used to represent any monetary value. While equity based financial instruments represent ownership of an asset; Debt based financial instruments represent a loan made by an investor to an owner whereas Forex instruments comprise a different third type of financial instruments. It is essential for you understand the assets and their sub categories, before you trade.
the Mentor's answerNicholas Kihn - Forex coach and mentor
While trading with financial “assets”, one needs to understand that market order that is placed before the beginning of the trade has the risk of paying more or receiving less than expected. Although the risk always exists, there are higher risks at the opening time. In a case under circumstances, one trade before the market opens; he/she should protect themselves by limiting your order.