A comprehensive guide to the types of financial instruments in the US market
The US market, being the largest and oldest financial market in the
world, includes a wide and diverse range of financial instruments. These
instruments meet the needs of a variety of investors, from beginners to
professionals. In this guide, we will review the main types of financial
instruments traded in the US market, with a simplified explanation of each
type.
Types of financial
instruments:
Financial instruments can be divided into two main categories:
Securities:
·
Stocks:
represent a share in the ownership of a company. When you buy a share, you
become a partial owner of the company, and make profits through dividend
distribution and increasing the value of the share.
·
Common
stocks: are the most common type, and give their holder the right to vote at
shareholders' meetings.
·
Preferred
stocks: give their holder priority in distributing profits and liquidating the
company in the event of bankruptcy, but usually do not give the right to vote.
·
Bonds:
are a loan granted to the investor to a company or government. The company or
government pays periodic interest on the loan, and returns the original amount
to you when the bond matures.
·
Government
bonds: are considered one of the safest bonds, as they are backed by the
government.
·
Corporate
bonds: carry higher risks than government bonds, but typically offer higher
returns.
Derivatives:
·
Futures:
a contract in which two parties promise to exchange a financial asset (such as
oil or gold) at a specified price on a specified future date.
·
Options:
a contract that gives the holder the right (but not the obligation) to buy or
sell a financial asset at a specified price within a specified period of time.
·
Swaps:
an agreement between two parties to exchange future cash flows based on the
value of an agreed-upon underlying asset.
Investment funds:
·
Mutual
funds: pool money from many investors to invest in a variety of assets, such as
stocks and bonds.
·
Index
funds: aim to track the performance of a specific market index, such as the
S&P 500.
·
Hedge
funds: investment funds that use a variety of complex strategies to generate
positive returns regardless of market direction.
Factors affecting the performance of financial instruments:
·
Economic
factors: such as economic growth, inflation, and interest rates.
·
Political
factors: such as changes in government policies and wars.
·
Industrial
factors: such as the performance of companies in a particular industry.
·
Psychological
factors: such as investor emotions and expectations.
Tips for investors:
·
Education:
Before investing, you should understand the basics about financial instruments
and financial markets.
·
Diversification:
Don’t put all your eggs in one basket. Spread your investments across a variety
of assets.
·
Long-term
investing: Successful investing requires patience and commitment.
·
Expert
advice: Don’t hesitate to seek advice from a professional financial advisor.
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