INVESTMENT INSTRUMENTS
Shares: Fractional ownership instruments. They are usually equity securities issued by a corporation, but may also include some types of debt, or can represent ownership in a fraction of a fund. Commonly traded in exchanges, but some types are traded privately.
Bonds: Units of debt securities and some hybrids. A few are exchange traded, but most are traded directly by specialized brokers. Less liquid than equity, due to issuers concentrating their equity issuance into one or few instruments, while their debt may be issued via many different instruments, each with their own maturity and structure of cash flows.
Money Market Instruments: Comprise cash and short-term instruments, including currencies and short-term debt. Short-term debt types include Treasury Bills, bank issued certificates of deposits, and commercial paper issued by corporations. Interbank market interest rates are a market of their own, used as benchmarks to which other instruments are linked. Examples include rates such as Prime, SOFR (Secure Overnight Funding Rate) and LIBOR (the “London Interbank Offering Rate”) which is mostly being replaced by SOFR as a derivatives and funding benchmark.
Mutual Funds: Public investment vehicles. Most common and traditional fund type before the advent of ETFs. They settle at day end at their net asset value (NAV).
Exchange Traded Funds (ETFs): Investment vehicles listed and traded in an exchange. Being listed securities gives ETFs intraday liquidity. Many are tied to indexes, providing instant access to a diversified portfolio of specific market segments. ETFs usually have a different tax structure than mutual funds and are created and redeemed via in kind transactions.
Hedge Funds: Privately issued investment vehicles with limited distribution.
Futures: Exchange traded financial instruments, traded for a delivery date in the future. They require daily exchange of margin, and are used mostly by institutions, funds and sophisticated investors. Common for trading commodities, currencies, equity indexes, treasury bonds, and interest rates.
Options: Contingent assets with a payout determined by the value of an underlying asset. Their two main classes are calls and puts. Options are traded both in exchanges and privately. ("OTC" meaning "over the counter").
Swaps: Exchanges of multiple cashflows between two parties, with each of the parties paying a specific set of periodic cashflows (or leg). Traded mostly by banks, large funds, large corporations, and institutions. Most common in fixed income, interest rate and long - term foreign exchange markets. They trade in the over the counter market, with clearing through centralized entities. Swaps linked to the return of commodities or specific assets are sometimes called total return swaps, usually custom made for investors by a specialized dealer providing financing for and or custody for the underlying asset.