Financial Instrument

Loading the player...

What is a 'Financial Instrument'

A financial instrument is a real or virtual document representing a legal agreement involving some sort of monetary value. In today's financial marketplace, financial instruments can be classified generally as equity based, representing ownership of the asset, or debt based, representing a loan made by an investor to the owner of the asset. Foreign exchange instruments comprise a third, unique type of instrument. Different subcategories of each instrument type exist, such as preferred share equity and common share equity, for example.

BREAKING DOWN 'Financial Instrument'

Financial instruments can be thought of as easily tradeable packages of capital, each having their own unique characteristics and structure. The wide array of financial instruments in today's marketplace allows for the efficient flow of capital amongst the world's investors.

RELATED TERMS
  1. Instrument

    1) A tradeable asset or negotiable item such as a security, commodity, ...
  2. Filter

    A set of criteria used to help an investor narrow down which ...
  3. Primary Instrument

    A financial investment whose price is based directly on its market ...
  4. Negotiable Instrument

    A document that promises payment to a specified person or the ...
  5. Sensitivity

    The magnitude of a financial instrument's reaction to changes ...
  6. Inverted Spread

    A situation in which the yield difference between a longer term ...
Related Articles
  1. Investing Basics

    Understanding Financial Instruments

    Financial instrument is a general term used to describe a monetary asset.
  2. Investing

    What are Debt Instruments?

    A debt instrument is a documented financial obligation that enables the issuer to raise funds by borrowing money and repaying it in the future.
  3. Bonds & Fixed Income

    Debentures

    Learn more about this type of debt instrument.
  4. Investing

    Arbitrage

    Learn more about this trade that profits from price differences between financal instruments and markets.
  5. Investing

    What Are Stocks?

    Stocks are one of the most popular financial instruments in the world, but what does a stock actually represent? Find out how and why stocks are created, and what buying a stock means for investors. ...
  6. Trading Strategies

    Top Day Trading Instruments

    Day trading is an intense and often appealing activity. Investopedia provides the list of top financial instruments for day trading.
  7. Professionals

    Balance Sheet Components - Marketable & Nonmarketable Instruments

    CFA Level 1 - Balance Sheet Components - Liabilities. Learn about the different types of liabilities. A top down approach into the components of long-term and current liabilities.
  8. Term

    How Points Relate to Financial Instruments

    Points usually refer to the measurement of some change in a financial instrument’s value.
  9. Professionals

    Money Market Instruments

    FINRA Series 6 Exam Study Guide - Money Market Instruments. This section deals with money market instruments and their characteristics.
  10. Professionals

    Other Money Market Instruments

    Government Money Market Instruments The Government and many of its agencies will go to the money market to obtain short- term funds. Some of the government money market instruments include: Treasury ...
RELATED FAQS
  1. Why are insurance companies and pension funds considered financial instruments?

    Find out why insurance companies and pension funds are considered carriers of financial instruments, and what role they play ... Read Answer >>
  2. Is a person registered for Financial Instruments Business eligible to conduct both ...

    Explore Japan's 2006 Financial Instruments and Exchange Law, and understand how the law affects investment services regulation. Read Answer >>
  3. Is reclassification of a financial instrument ever permitted?

    Find out how the IASB and FASB address the reclassification of assets, when such reclassification is allowed and why it is ... Read Answer >>
  4. What are some examples of debt instruments?

    Learn about the common types of debt instruments used by individuals, businesses and governments to raise capital and generate ... Read Answer >>
  5. Below is an example of US Treasury yields for various maturities ...

    The correct answer is b. A normal yield curve chart shows long-term debt instruments having higher yields than short-term ... Read Answer >>
  6. What's the difference between a capital market and the stock market?

    Learn about the differences between stock market and capital market. Identify several important stock markets and understand ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center