People, companies, and governments use many different assets and contracts to further their financial goals and to manage their risks. The most common assets include financial assets (such as bank deposits, certificates of deposit, loans, mortgages, corporate and government bonds and notes, common and preferred stocks, real estate investment trusts, master limited partnership interests, pooled investment products, and exchange-traded funds), currencies, certain commodities (such as gold and oil), and real assets (such as real estate). The most common contracts are option, futures, forward, swap, and insurance contracts. People, companies, and governments use these assets and contracts to raise funds, to invest, to profit from information-motivated trading, to hedge risks, and/or to transfer money from one form to another.
Classifications os Assets and Markets
The most actively traded assets are securities, currencies, contracts, and commodities.
In addition, real assets are traded. Securities generally include debt instruments, equities, and shares in pooled investment vehicles.
Currencies are monies issued by national monetary authorities.
Contracts are agreements to exchange securities, currencies, commodities or other contracts in the future.
Commodities include precious metals, energy products, industrial metals, and agricultural products.
Real assets are tangible properties such as real estate, airplanes, or machinery. Securities, currencies, and contracts are classified as financial assets whereas commodities and real assets are classified as physical assets.
Securities are further classified as debt or equity.
Securities are also classified by whether they are public or private securities.
Contracts are derivative contracts if their values depend on the prices of other underlying assets.
Markets that trade contracts that call for delivery in the future are forward or futures markets. Those that trade for immediate delivery are called spot markets to distinguish them for forward markets that trade contracts on the same underlying instruments. Options markets trade contracts that deliver in the future, but delivery takes place only if the holders of the options choose to exercise them.
When issuers sell securities to investors, practitioners say that they trade in the primary market. When investors sell those securities to others, they trade in the secondary market. In the primary market, funds flow to the issuer of the security from the purchaser. In the secondary market, funds flow between traders.
Practitioners classify financial markets as money markets or capital markets. Money markets trade debt instruments maturing in one year or less. The most common such instruments are repurchase agreements, negotiable certificates of deposit, government bills, and commercial paper.
In contrast, capital markets trade instruments of longer duration, such as bonds and equities, whose values depend on the credit-worthiness of the issuers and on payments of interest or dividends that will be made in the future and may be uncertain. Corporations generally finance their operations in the capital markets, but some also finance a portion of their operations by issuing short-term securities, such as commercial paper.
Finally, practitioners distinguish between traditional investment markets and alternative investment markets. Traditional investments include all publicly traded debts and equities and shares in pooled investment vehicles that hold publicly traded debts and/or equities. Alternative investments include hedge funds, private equities (including venture capital), commodities, real estate securities and real estate properties, securitised debts, operating leases, machinery, collectibles, and precious gems.
