Club5050-Financial Market And Trading Instruments.
Hi everyone.
Today my discussion is particularly going to be on a financial market and its corresponding trading instruments. In this post, I will be explaining what a financial asset or instrument is, their classifications and some trading strategies in the crypto market.
A financial instrument refers to any tradable asset. An example of a financial instrument can be cash, gold, silver, business etc. It might seem difficult to determine a financial asset but the primary ideology is that whatever a financial asset is or whatever it represent, it’s always tradable.
Financial instruments is of different types based on different classification methods. One of these classifications is based on them being fiat currency or derivative instruments. As the name itself implies, derivative instruments attain their value from something else like a cryptocurrency. Financial instruments can also be grouped as equity-based.
But the question now is where to cryptocurrency fall? Looking at things, they could fit into several categories. The simplest classification of cryptocurrencies is that they are digital assets. However, the potential of cryptocurrencies depends in developing an entirely new financial system.
In this case, cryptocurrencies make up a completely new group of digital assets. As the ecosystem is established, several new categories may be established which would not otherwise be possible.
A spot market represent the place where financial instruments are traded. In the spot market, investors exchange their financial instruments for fiat currency, this is normally term as (immediate delivery). Not all markets settled In fiat currency instantly.
For example, considering the future market for instance. In future market assets are delivered at a later date not on the same the exchange is carried out. And this happens when the future contracts expires.
Spot market are places where trades are made on the spot. The current market value or price of an asset is usually termed as spot price because trades are made or settled immediately.
Now, let’s look at this in the context of cryptocurrency market. With the help of Binance spot market, you can trade assets with each other. Incase you want to trade BNB for BUSD you simply have to go to BNB/BUSD spot market and place your order. Similarly, if you want to exchange your BNB to BTC, you have to go to the BNB/BTC spot market. Once your orders are granted, your assets will be swapped instantly. As you an see, the spot market is one of the easiest way you can trade cryptocurrencies.
Derivatives refers to financial assets that base their value on a different thing else. This can be a basket of assets. The most common types of derivatives are bonds, commodities, stocks, cryptocurrencies (market indexes).
These derivative products are essentially a contract between different parties. They attain their prices from the basket of assets that are used as benchmark. No matter which asset is used as the reference point, the basic idea is that the derivative product attain its value from it.
Some known examples of derivative products include future contracts, options contracts and swaps. According to different sources, the derivatives market is seen to be one of the biggest markets. This is because, derivatives can exist for any financial product and derivatives can be developed from derivatives again.
Future contracts are type of derivatives product that enables traders to speculate on the future price of an asset. It involves an agreement between two or more parties to settle the transaction at a later date known as expiring date. As I have talked about derivatives, the basket of asset for a contract like this can be any asset.
This expiring date of future contract is the last day the trading activity is going for that specific contract. The contract expires to the last traded price at the end of the day. The settlement of the contract is known beforehand and it can be in a form of fiat or physically delivered. When it is physically delivered, the basket asset of the contract is exchanged directly.
Hope the all the above trading instruments and financial market are well explained. These are not all the trading instruments but I just decided to explain on this ones for the mean time and will continue with the others as time goes on.
Thank You All!!
Twitter Shared
You have given a very good idea about financial markets and trading instruments. I learned a lot from that. Because you have beautifully shared everything with us. Thanks for pointing us to this.
It is always a pleasure doing so. We learn from each other on this platform and share the little knowledge we also have for others to also benefit. I’m glad you stop by to read my post.
Thanks for your consistent effort in the community. The concept of Forward and Future should help the newbies in trading to get idea.
It is always a pleasure doing do so my dear.