Financial Instrument
If you start trading in Future & Option (FnO) without having the knowledge of FnO, you will have no Future & left with no Option.
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FnO is a type of derivative contract.
Derivative =>
- it means a by-product of something.
(For Science Student -> Derivation in mathematics)
(For Economic Student -> Financial Instrument is a derivative)
example:-
Milk ---> Tea, Coffee
Sugarcane ---> Sugar
Here Tea, Coffee, and Sugar are the derivatives of their underlying asset which is Milk and Sugarcane.
I think you have got an idea of what derivative means.
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Financial Instrument =>
- A Financial Instrument is an asset that can be traded.
- A Financial Instrument is a real or virtual document representing a legal agreement involving any kind of monetary value.
Financial Instrument ---> Tradable, Legal Agreement, Monetary Value
Financial Instrument is -
1. Derivatives (Indes, Shares, etc)
2. Cash (Bond, Cheque, etc)
3. Asset Class (Debt-based, Equity-based, Forex, etc)
example:-
Shares [Tradable(✓) Legal Agreement(✓) Monetary Value(✓)]
Shares are (Tradable) on the stock market and you spend money (monetary value) to buy them after buying you receive a share certificate (Legal Agreement) so Shares are a Financial Instrument.
Debentures --> [Tradable(✓) Legal Agreement(✓) Monetary Value(✓)]
Bonds --> [Tradable(✓) Legal Agreement(✓) Monetary Value(✓)]
Fixed Deposit (FD) --> [Tradable(☓) Legal Agreement(✓) Monetary Value(✓)]
As FDs are not Tradable they are not a type of Financial Instrument
Land Property --> [Tradable(☓) Legal Agreement(✓) Monetary Value(✓)]
You can not find the buyer for your property whenever you want so it is not tradable and does not fall into a type of Financial Instrument.
NOTE --> Financial assets (e.g. Land, Car) & Financial Instruments are different.
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