The world’s financial markets can be incredibly complex, particularly when you consider the various terms and jargon used to describe asset classes, price movements and the fundamental mechanisms of trading.
On a fundamental level, however, you’ll need a tangible medium to trade in any market, which must effectively represent your chosen asset class and can be selected from an increasingly diverse range in the modern age.
This medium is often referred to as a “financial instrument”, and we’ll explore this further in the post below while asking how they’re used by investors.
What is a Financial Instrument?
From the perspective of trading, an instrument directly describes a tradeable asset or negotiable item, with a wide and fast-growing range of examples available in the financial markets in the digital age.
As we’ve already said, these instruments represent specific asset classes and marketplace, with currency offering a relevant case in point. These derivative assets can be traded on the forex market, without investors having to assume ownership of the underlying instruments or pairings.
The single most popular financial instrument in the market (thanks largely to the derivative nature of currency and its innate liquidity levels), you can use an established broker to undertake forex trading in Thailand or any other regional entity across the globe.
This also affords you access to a wider range of currency pairs and underlying instruments, including major, minor and even exotic assets.
Stocks also represent a popular financial instrument, and one that’s commonly traded through various indices across the globe.
These indices provide insight into the performance of a wide stock market and various industries, with the most iconic examples including the S&P 500, the FTSE 100 and the tech-heavy Nasdaq 100.
What Other Financial Instruments Are Available in the Marketplace?
You may also trade in physical commodities, which are examples of corporeal financial instruments that provide investors with access to a secure store of wealth.
This is best embodied by gold, which has a finite supply and tends to see huge spikes in demand and value during times of economic tumult. Interestingly, the value of gold has risen by 28% during the depths of the coronavirus pandemic, and despite a recent correction, is poised to break the $2,000 threshold once again during Q1 of 2021.
Silver is another financial instrument within the precious metal asset class, and one that treads the fine line between providing a secure store of wealth and greater volatility during times of growth.
In this respect, the industrial nature of silver and its various practical applications such as batteries and semiconductors may make this a viable asset class as the global economy continues to recover from the coronavirus.
Livestock and oil also provide viable (albeit less tangible) commodity instruments, but you should note that a low supply for your chosen asset will lead to an increased buying price over time.
Commodities can also be traded freely through reputable online and mobile brokerages, and are largely favoured due to their relative predictability and correlation with certain currencies (in some instances).