Types of Financial Instruments in American Market

 

The financial instruments available in the American market are very diverse, providing investors with a wide range of options to achieve their financial goals. These instruments can be classified into several main categories that we explain in today's article in detail.

 

Types of Financial Instruments in American Market

These instruments can be classified into several main categories:

 

1. Securities:

·        Stocks: represent an ownership stake in a company. When you buy a share, you become a partial owner of the company and make profits through dividend distribution and increasing the value of the share.

·        Common shares: are the most common and give their holder the right to vote at shareholders' meetings.

·        Preferred shares: have priority in dividend distribution and liquidation, but often do not give the right to vote.

·        Bonds: are a loan provided to companies or governments, and are a means of financing their projects. The bondholder receives periodic interest and the original amount is repaid to him when the bond matures.

·        Government bonds: are considered among the safest bonds, as they are issued by the government and supported by the state's ability to repay.

·        Corporate bonds: issued by companies to finance their operations, and the degree of risk varies according to the company's financial strength.

 

2. Financial Derivatives:

·        Futures: A contract in which two parties commit to buy or sell a financial asset at a specified price on a specified future date.

·        Options: A contract that gives the holder the right (but not the obligation) to buy or sell a financial asset at a specified price during a specified period of time.

·        Swaps: An agreement between two parties to exchange future cash flows based on the value of a particular underlying asset.

 

3. Investment Funds:

·        Mutual Funds: Pool money from multiple investors to invest in a variety of assets, such as stocks and bonds.

·        Index Funds: Track the performance of a particular market index, such as the S&P 500.

·        Exchange Traded Funds (ETFs): Similar to index funds, but trade on an exchange like stocks.

 

4. Alternative Assets:

·        Real Estate: Investing in residential or commercial real estate.

·        Commodities: Investing in gold, oil, and other metals.

·        Cryptocurrencies: Investing in digital currencies such as Bitcoin.

 

Factors that affect the choice of financial instruments

·        Investment Objectives: Are you looking to achieve long-term capital growth, obtain a steady income, or diversify your portfolio?

·        Risk Tolerance: How much you are willing to tolerate market volatility and potential loss.

·        Investment Time Horizon: How long you intend to invest.

·        Taxes: The effects of taxes on investment returns.