The Different Kinds of Financial Instruments

When I say stock market, usually, the person I’m conversing with tells me “oh it’s about investing in stocks and bonds right?” Sometimes, this particular mindset of only stocks and bonds in the stock market limits a person in investing in the other areas of the financial market due to a lack of knowledge of financial instruments. Here is a list of common financial instruments in the stock market today.

1.     Financial Instruments and Commodities

Financial instruments are securities whereas commodities are existing rare minerals such as gold, nickel, platinum, zinc, etc. In the stock market, investors buy different kinds of financial instruments to ensure they maximize their gains and cut their losses.

2.     Debt Securities

Bonds are a form of debt which companies, local governments and federal governments issue to raise money in the capital markets. Capital markets assumes that the money generated has a payout period greater than one year. Most bonds and other forms of debt securities have the investor lend money to the issuer for exchange of ongoing interest payments. Most bonds have a seven-year maturity period that guarantees the added interest rate on top of the original principal amount.

3.     Futures

Sometimes, you might hear about futures contracts between investors and you find yourself puzzled.  A futures contract is a guarantee between money managers that allows them to purchase or sell securities and commodities at a fixed price at a given time in the future at a price agreed upon by both parties

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4.     Options

Options allow investors the option to buy other financial instruments at a pre-determined price within a given time frame.