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What is a financial instrument? Understand these investment building blocks – Financial Post

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3 years ago

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The assets trade in the market and take many forms, some common and others more complex

Author of the article:

MoneyWise

Clayton Jarvis

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Inozemtsev Konstantin / Shutterstock

Financial instruments have a musical name, but no, they’re not trumpets that spit out money. Instead, they play a big role in circulating money through the economy.

At the basic level, financial instruments are monetary contracts between individuals or organizations that parties can trade on the open market. The assets take several forms and are categorized in two ways: by type and by asset class.

The two types of financial instruments:

  • Cash instruments — Deposits and loans, commodities, foreign currencies, and securities, such as stocks and bonds.
  • Derivative instruments — Futures, options, swaps and forwards, and assets that get — or derive — their value from the underlying asset they represent. Those assets can include commodities and precious metals, including silver and gold, as well as cash instruments, such as currency, stocks and bonds.

The two asset classes for financial instruments:

  • Equity-based financial instruments — Provide their owners a stake in an enterprise. Most common example: stocks, both common and preferred.
  • Debt-based instruments — Involve loans with interest. Examples: mortgages, bonds, leases and notes.

Most investors tend to get involved with financial instruments by buying the cash varieties, including bonds, stocks and guaranteed investment certificates, or shares in an exchange-traded fund or real estate investment trust.

Investing in derivatives, such as stock options and futures, is more complex because the contracts involved can require investors to buy or sell assets at predetermined times and prices, regardless of their actual market value when the contract comes due.

Some derivatives can be difficult for investors to access because they’re not sold on a centralized exchange, such as the Toronto Stock Exchange. For that reason, they’re called over-the-counter derivatives, and you would need to work with a broker who specializes in them.

Even if you didn’t know the definition of financial instruments until today, you’ve probably been playing them as long as you’ve been investing.

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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S&P/TSX composite up more than 100 points, U.S. stock markets mixed

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1 week ago

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October 16, 2024

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TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

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2 weeks ago

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October 11, 2024

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TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite little changed in late-morning trading, U.S. stock markets down

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2 weeks ago

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October 10, 2024

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TORONTO – Canada’s main stock index was little changed in late-morning trading as the financial sector fell, but energy and base metal stocks moved higher.

The S&P/TSX composite index was up 0.05 of a point at 24,224.95.

In New York, the Dow Jones industrial average was down 94.31 points at 42,417.69. The S&P 500 index was down 10.91 points at 5,781.13, while the Nasdaq composite was down 29.59 points at 18,262.03.

The Canadian dollar traded for 72.71 cents US compared with 73.05 cents US on Wednesday.

The November crude oil contract was up US$1.69 at US$74.93 per barrel and the November natural gas contract was up a penny at US$2.67 per mmBTU.

The December gold contract was up US$14.70 at US$2,640.70 an ounce and the December copper contract was up two cents at US$4.42 a pound.

This report by The Canadian Press was first published Oct. 10, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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