Stock market 101: An introduction to financial instruments

Julie Brownlee, Fsp Invest, 01 Oct. 2014

Tags: financial instrument, financial instruments, what are financial instruments, investing, derivatives,

If you’ve decided to invest, the first thing you’ll have to decide is which financial instruments you’re going to use.

There are a wide array available. And depending on your attitude to risk, there will be different ones better suited to you.

So what is a financial instrument? And what financial instruments are out there?

Let’s take a closer look…

What is a financial instrument?

To give a financial instrument its formal definition, it’s an easily tradable package of capital.

All financial instruments are slightly different. They can be equity based, debt based or foreign exchange based.

Let’s look at some equity based financial instruments…

The most common financial instrument – shares

When you think of investing, shares are probably the first thing that comes to mind.

When you invest in shares, you buy a ‘share’ in a company. You can benefit from a company’s success through its share price rising and any dividends the company may pay out.

A financial instrument growing in popularity – ETFs

Exchange traded funds (ETFs) are becoming more popular since their launch.

Instead of investing in a specific company, you invest in a basket of shares that replicates the performance of an index.

ETFs are a great way to gain exposure to an index on the stock market.

The riskier financial instruments out there – derivatives

Investing in shares and ETFs come with risks. But financial derivatives take that risk factor up a notch. With that risk comes the chance of higher rewards.

Derivatives include warrants and single stock futures. These financial instruments aren’t suitable if you’re risk averse.

If it’s something you’re interested in pursuing, you need to understand exactly what you’re doing before risking any of your money. You can lose more than you originally put in.

So there you have it, an introduction into financial instruments.

*********** Hot off the press ************

How would you like to WIN R100,000 trading the stock market?

If you've ever dreamed of living the life of a high-flying trader - And earning a consistent income from the stock market - NOW is your chance!

Join the R100,000 Traders Challenge today and we'll:

  • teach you how to trade - even if you've never bought or sold a stock before
  • give you a FREE trading account to hone your trading skills
  • and give you a chance to win R100,000 in REAL MONEY
That's right! The top three traders by the 30th of November 2014 will take home a combined R100,000!

So what are you waiting for? Click here and become a high-rolling trader today!


Related QA

d.c.heger asked:
MY QUESTION IS – I bought Bitcoin & Etherium some time ago – at first they grew nicely but now they are lower than what I paid for them. Should I [read more]
Published at 04 Apr. 2018 in: Investing 5 shares due to rocket 1 Answer
kavesh.maharaj.73 asked:
Hi Josh. I would like some advice on TFSA. I can get an interest rate of 7.8% nominal at a bank if I invest the R33k upfront in a fixed deposit [read more]
Published at 19 Mar. 2018 in: Investing Tax free savings vehicle 2 answers
kavesh.maharaj.73 asked:
Hi Josh Quantum wants to buy back shares from shall investors at what I think is a low price of around R3.86. You tipped the share in February [read more]
Published at 14 Mar. 2018 in: Investing Real wealth 5 answers
elizastrydom asked:
Hi Timon I am interested in registering for your Red Hot Storm Trader service. I am already a Red Hot Penny Shares investor. My question is [read more]
Published at 28 Feb. 2018 in: Investing Trading platform and broker 1 Answer
ManuE asked:
I have an interest in investing in Bitcoin, I just don't know how. If I buy Bitcoin with R15 000, how much can make (Return On Investment)? [read more]
Published at 25 Feb. 2018 in: Investing Investment 1 Answer

Related articles: