Primary Instrument

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.

Investopedia explains '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.


Filed Under: , ,

comments powered by Disqus
Hot Definitions
  1. Benchmark Bond

    A bond that provides a standard against which the performance of other bonds can be measured. Government bonds are almost always used as benchmark bonds. Also referred to as "benchmark issue" or "bellwether issue".
  2. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying a company's shares outstanding by the current market price of one share. The investment community uses this figure to determine a company's size, as opposed to sales or total asset figures.
  3. Oil Reserves

    An estimate of the amount of crude oil located in a particular economic region. Oil reserves must have the potential of being extracted under current technological constraints. For example, if oil pools are located at unattainable depths, they would not be considered part of the nation's reserves.
  4. Joint Venture - JV

    A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it.
  5. Aggregate Risk

    The exposure of a bank, financial institution, or any type of major investor to foreign exchange contracts - both spot and forward - from a single counterparty or client. Aggregate risk in forex may also be defined as the total exposure of an entity to changes or fluctuations in currency rates.
  6. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
Trading Center