Trading instruments are items that are traded or purchased other than currency. There are so many different types of trading instruments available, and they include stocks, indices, futures, options, futures contracts, commodity trading and foreign exchange (forex). An instrument is anything that is legally traded, including stocks, bonds, foreign currency, money, precious metals, and stamps. A futures contract is a perfect example of an instrument trading. This contract promises to pay a specific amount of money (the price) for a certain period of time, at a pre-determined price, if the conditions established within the contract are met.
The commodity markets provide a multitude of different types of trading instruments. Among the most popular and widely traded are agricultural futures, stock index futures, wheat and feed futures, meat and grain futures, citrus fruits futures, and fish futures. Commodity futures deals with contracts to buy or sell commodities at a later date. These contracts are typically agricultural, such as soy beans, dairy products, sugar, corn, and poultry. Speculative trading occurs when speculators predict that the prices of particular stocks will rise, and then purchase and sell contracts for those stocks when the predicted peak in the price occurs.
The trading technique used by most professional traders involves leverage. Leverage, also known as high-risk investing, is a strategy that uses borrowed money to trade on its own. By increasing the leverage, a trader increases his or her chances of gaining a profit. However, this strategy comes with a large risk. High-risk investing generally involves leveraged accounts, high trading frequency, and very liquid trading; therefore, a trader must carefully consider his or her risk-return scenario.
Forex exchange trading includes contracts to buy or sell the foreign currencies of the country where the contract is made. There are different types of forex exchange trading instruments available on the market. These are forex spot, forex futures, forex mutual funds, forex options, and forex forward or back trading. Spot exchanges involve commodities and currencies that are bought and sold in very small amounts. Futures exchanges deal with agricultural products like milk, meat, hops, and grains.
Mutual funds are investment funds that are traded on stock exchanges. Different types of mutual funds exist, depending on the nature of the funds’ portfolios. Options are foreign exchange contracts that give traders the right to either buy or sell a certain asset at a specific price at any time during the contract. Most leveraged trading instruments fall under these categories. Speculative trading, also known as spread betting, is executed through margin trading, margin accounts, and various other techniques.
Financial markets include borrowing and lending, currencies, interest rates, credit extended to individuals or corporations, commodity markets, and stock trading. The financial markets are where most trading activities take place. The large financial markets include the futures market, the foreign exchange market, and the stock market. Most people are familiar with the stock market, which is a large set of trading exchanges that provide for trading shares of equities (company securities) and derivatives (bonds and securities). Derivatives are products that allow companies to accomplish financial tasks by using their existing assets instead of cash.
Stock exchanges are places where shares of stock are listed for trading. Traders can buy or sell shares of stock at any point during the trading day and pay for them later. Different types of stock exchange instruments exist, depending on the type of stocks being traded. Futures trading instruments, options trading instruments, and commodity trading instruments are a few examples of stock exchange instruments.
Commodities exchanges include commodities such as oil, gold, silver, wheat, and pork bellies. Soybean futures trading is conducted on the Chicago Board Exchange and dairy futures are traded on the National Milk Producer Council. Livestock meat contracts are traded on the New York Stock Exchange and grain trading exchanges exist in Chicago and Omaha, Nebraska.