What Instruments are Traded in Stock Markets?
Stock markets are financial exchanges that provide a platform for buying and selling certain instruments. These financial instruments include shares, bonds, derivatives, commodities, funds, and many more. By trading these instruments, businesses, investors, and traders can generate profits. In this article, we will look at the various instruments that are most commonly traded in stock markets.
Stock
The most common instrument traded on stock markets is shares, often referred to as stocks. Stocks represent ownership in companies, in the form of partial ownership units. They are used by businesses to source capital—when companies issue stocks, they receive money which is used to expand/improve the business. For investors, stocks can generate profits when the share value increases, or when the company pays out dividends.
Bonds
Bonds are another common instrument traded in stock markets. They are debt instruments issued by governments or companies, and are typically used to borrow money to finance their activities. When an investor purchases a bond, they are lending money to the issuer, and in return they receive interest payments and their capital back at a pre-determined date (maturity date).
Derivatives
Derivatives are financial instruments whose values are dependent on the price of other securities. They are used to hedge risks, as well as to speculate on the price movement of a stock or category of stocks. Examples of derivatives include futures, forwards, options, and swaps.
Commodities
Commodities are also frequently traded on stock markets. These are goods such as oil, grains, metals, and more, that are produced in large quantities for trading purposes. They are standardized goods, and their prices are primarily determined by supply and demand, rather than by individual companies.
Funds
Funds are another popular instrument traded in stock markets. These are investment funds that pool money from multiple investors, and invest it in securities, such as stocks and bonds. They are professionally managed to generate profits, and are also used to diversify investors’ portfolios.
Real Estate
Real estate is another instrument which is increasingly being traded on stock markets. This can refer to shares of publicly-traded companies that own or control real estate properties, or it can refer to actual properties that are being bought and sold by investors.
Currency
Foreign exchange (currency) is also traded on stock markets, though this is done through dedicated markets, such as FOREX. Foreign exchange instruments include currency futures, currency forwards, currency options, and more. These are instruments which provide investors with various ways to speculate/hedge on the movement of a currency.
Stock markets provide a platform for the buying and selling of various financial instruments. These include stocks, bonds, derivatives, commodities, funds, real estate, and more. Each instrument provides different kinds of opportunities for investors, and trading them can generate profits.
