Any asset or contract that can be traded is termed a trading instrument. Some trading instruments are more common than others.
Do you remember trading Pokémon cards with your friends during your school days? That was your trading instrument then.
Now, as you have grown up, it’s a different picture. In the financial world, the typical trading instruments are stocks, currency, options, metals, etc. All these instruments trade on different platforms where the buyer and seller can meet and trade.
Let’s See the Most Common Trading Instruments In India 2023
The most common trading instruments are:
Stocks are the most commonly traded instruments in the market. One stock of any corporation represents fractional ownership in that particular company. So if you are buying a stock, you are becoming a part-owner of that corporation.
A good stock traded in large volume will have higher liquidity than a less traded stock. Liquidity is an essential factor that you will consider before trading an instrument. Without liquidity, your investment will be stuck.
Stock prices are volatile, and the stock price volatility comes from the continuous buying and selling. You can think of volatility as a risk factor.
If a stock is very volatile, the risk is high, as you don’t know how the stock price will change over time. So, if you love your capital, try to avoid risky stocks.
Options are derivative contracts that derive their value from an underlying asset. There are two kinds of options, call and put.
The call option will provide you with the freedom to buy the underlying asset at a predetermined price, and the put option will give you the right to sell the underlying asset at a predetermined price. Options are contracts, and these contracts trade on the Options exchanges.
Options have tremendous volatility. In a single day, it can move 500 percent. The leverage factor associated with options is enormous. They can double your investment in a single day, or make you cry.
Precious metals like gold, silver, copper, etc., are traded in the commodities market. You can either buy an exchange-traded fund (ETF) or enter into a derivative contract.
Investing in physical gold is difficult and risky. You will never get the desired value while selling physical gold, but if you buy a gold ETF, you can sell them anytime you want at the market price.
So metals trade heavily in the commodities market, and it is a prevalent trading instrument for investors who wish to diversify their portfolios.
Currency Derivatives are extremely popular. Mainly, Forex traders trade on currency derivatives as they bet on the underlying currency movement. Common types of currency derivatives are futures, forwards, options, etc.
All the instruments mentioned in this article have been traded in their respective markets for decades. The most common reason for their popularity is their usefulness and availability.
Gold is a precious metal and will never lose its value. Similarly, we need currency on a day-to-day basis. Before you plan to trade, you should always look for safe investments that will not lose their value.
So, what are you waiting for? Be cautious, keep calm, and start trading.