Primary Instrument

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DEFINITION of 'Primary Instrument'

A financial investment whose price is based directly on its market value. Examples of primary instruments include stocks, bonds, certificates of deposit, bills and anything else that has its own value. By contrast, the price of derivative instruments, such as options, swaps and futures, is based on the value of their underlying assets.

BREAKING DOWN 'Primary Instrument'

While the markets have established hundreds of instruments to facilitate the flow of capital and the management of risk, primary investments like stocks are what most beginning investors think of when they think about investing. This is because investing in primary instruments requires only basic knowledge of markets and investment principles.

A non-primary instrument would be something like a call option, which gives the owner the right to purchase the underlying stock at a certain price. So, if the price of the stock goes up, the call option's value also goes up. The call's value is based on the value of something else so it is not a primary instrument.

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RELATED FAQS
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    Consumer debt instruments allow people to borrow money at specific interest rates. In recent years, the credit industry has ... Read Full Answer >>
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    Traders roll over futures contracts to switch from the front month contract that is close to expiration to another contract ... Read Full Answer >>
  3. How does a forward contract differ from a call option?

    Forward contracts and call options are different financial instruments that allow two parties to purchase or sell assets ... Read Full Answer >>
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    Different types of companies may enter into futures contracts for different purposes. The most common reason is to hedge ... Read Full Answer >>
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