Financial Instrument

AAA

DEFINITION of 'Financial Instrument'

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.

INVESTOPEDIA EXPLAINS '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. Capital

    1) Financial assets or the financial value of assets, such as ...
  2. Primary Instrument

    A financial investment whose price is based directly on its market ...
  3. Regulation J

    A regulation set forth by the Federal Reserve. Regulation J establishes ...
  4. Equity

    1. A stock or any other security representing an ownership interest. ...
  5. Common Stock

    A security that represents ownership in a corporation. Holders ...
  6. Forex - FX

    The market in which currencies are traded. The forex market is ...
Related Articles
  1. Investing Basics

    Stock Basics Tutorial

    If you're new to the stock market and want the basics, this is the tutorial for you!
  2. An Introduction To Stock Market Indexes
    Investing Basics

    An Introduction To Stock Market Indexes

    Investopedia explains the five most talked about indexes and what makes them all different.
  3. Home & Auto

    The Bear On Bonds

    Bond investing is a stable and low-risk way to diversify a portfolio. However, knowing which types of bonds are right for you is not always easy.
  4. Active Trading Fundamentals

    Is there short selling in China?

    The Chinese stock market has no history of short sales. However, in 2007, the Chinese government, in an effort to increase the types of financial instruments available to market participants, ...
  5. Retirement

    The Money Market

    If your investments in the stock market are keeping you from sleeping at night, it's time to learn about the safer alternatives in the money market.
  6. Options & Futures

    20 Investments You Should Know

    To take advantage of all your investing options, you need to know what your choices are. Here we tell you about the diverse features and advantages of 20 different financial instruments.
  7. Taxes

    How are preferred stock dividends taxed?

    Discover the intriguing debt and equity characteristics of preferred stock, and learn about how preferred stock dividends are taxed.
  8. Curious about preferred shares? Here's what you should know about these bond-like instruments.
    Trading Strategies

    What You Need To Know About Preferred Stock

    Curious about preferred shares? Here's what you should know about these bond-like instruments.
  9. Investing

    What is the difference between preferred stock and common stock?

    Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's assets and earnings. This is true during the good times when the ...
  10. Investing

    Why do some preferred stocks have a higher yield than common stocks?

    Before we answer this question, let's just take a quick review of what a stock's yield is actually measuring.The yield is calculated by taking the stock's annual expected dividend and then dividing ...

You May Also Like

Hot Definitions
  1. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  2. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  3. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  4. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  5. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
  6. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
Trading Center