Trading instruments have been around since the days of the ancient traders and merchants. Trading instruments can be defined as any legal agreement or contract that allows one to trade legally. Trading instruments also known as financial instruments or financial contracts are usually exchange-traded derivatives. These derivatives are financial securities, bonds, stock indices, and financial futures contracts. It should be noted that trading instruments do not only involve trading on the commodity market but also in the Forex market.
There are various trading instruments that are traded on the commodity and equity markets. Commodity trading instruments include agricultural commodities like agricultural produce, livestock, etc., petroleum and hydrocarbons, metals and iron ore, precious metals, energy goods, etc. Energy trading instruments include petroleum, natural gas, electricity, etc. Metals trading instruments include gold, silver, platinum, etc. Financial trading instruments include forward contracts, equity index products, interest rates, commodity market indices, government debt, etc.
The term equity derivative refers to any financial instrument that tracks the movements of the price of an asset class. An equity derivative is any derivative whose price is influenced by changes in the price of an underlying asset. Some of these instruments are foreign exchange traded instruments, interest rate linked securities, credit default swaps, interest rate sensitive securities, equity index products, and foreign currency swap agreements. Bond trading is another financial instrument where one buys a bond and then sells it back at a later date at a profit. In this transaction, a profit is made when the bond’s interest rate is lower than the prevailing market interest rate.
Another category of trading instruments is commodity and index futures. Commodity and index futures refer to agricultural products such as poultry, meat, dairy, etc., that are sold or bought in future dates for delivery in specified quantities at specified prices. The commodity futures market is the main trading area for sugar, cocoa, oats, corn, soybeans, sugar cane, wheat, barley, cotton, etc. The index futures market is the place where most of the goods sold are fixed-rate assets.
One other type of trading instruments is commodity and bond futures. These trading instruments track commodities and/or fixed-rate assets that are bought and sold on the same day. Bond futures are considered to be high liquidity because of their high liquidity and low transaction costs.
Some of the financial instruments traders buy and sell include stock indexes, forex trading, commodity markets, options trading, futures trading, bond futures, cash markets, and mortgage trading. These are just some of the popular trading instruments being traded in the world today. Online trading has made these available to virtually everyone who has Internet access. This means anyone can now become a financial speculator.
Financial contract trading, or CFDs, are derivative products that allow traders to speculate on the movement of certain underlying financial instruments. CFDs are traded on futures exchanges and over the counter (OTC) financial markets. CFDs provide both flexibility and safety to CFD traders and are a leading trading instrument used today.
Oil is a commodity traded on the commodity futures exchange. Oil futures are derivatives whose values are derived from the price of the crude oil. Speculative trading instruments in the Futures industry include Spot contracts, forward contracts, swap agreements, and forward contracts. CFDs are derivatives that enable traders to speculate on movements in the price of the underlying stock, index, currency, commodity, or index.
Among the most traded financial instruments are equity index futures contracts and equity futures options. These allow CFD traders to speculate on changes in the prices of particular listed entities. Leverage is a method of borrowing an amount of equity to give you a chance to purchase stock that may be falling in value and earn profits when it rises.
Another type of trading instruments are commodity futures contracts. This is where commodities are leveraged to allow for greater potential returns. CFDs were initially designed as trading instruments for agricultural and industrial trading. Today, the trading of CFDs are used for a wide variety of reasons. Some traders may want to speculate on the movement of currencies as a way of hedging against fluctuations in natural resources. Others may want to speculate on the fall or rise in the value of certain commodities as a way of protecting themselves against losses in other assets.
One of the most important considerations when trading these derivatives is your entry and exit points. Entry points refers to the price level that allows you to buy a CFD at a given rate. Expiration is the point at which you are paid your share of the profit. Leverage on these types of instruments is based on the value of the particular currency pair you are trading. The foreign exchange market keeps large amounts of foreign currencies available for trading. If you are unfamiliar with CFDs or don’t feel comfortable dealing in the currency markets, then consider talking to a broker about this possibility.