A financial instrument is a product that allows investors or traders to access markets and participate in the price action of an asset. An instrument can be almost anything, from stock in a company to complex derivative contracts or cryptocurrencies, it just needs to be tradeable. This includes private market instruments such as private debts or mortgages.
Each financial instrument has a different profile, and the way you access them in financial markets varies wildly. For example, to buy CFDs you will need to trade directly with a CFD provider, whereas you access the stock market (often also via a brokerage platform) using a stock exchange. Financial instruments are described as being ‘over the counter’ or ‘exchange traded’. Over the counter instruments are traded directly between two market participants who agree on a price; forex and forwards are the two main examples. This doesn’t mean that you need to find someone yourself to trade with – for most products, some firms act as market-makers and execute trades for a price.
Exchange traded products – stocks, futures and ETFs – are different in that they are accessed through a centralised exchange. This provides price transparency and can help reduce the risk of fraud while lowering transaction costs for everyone. Exchange-trading is not suitable for all instruments because it requires a certain volume of open interest to be viable. Thus, highly customisable contracts such as options do not use them. This is also the reason why very thinly traded stocks are regularly delisted from exchanges.
ADSS offers a range of global markets for traders, with CFD opportunities in indices, commodities, forex, equities and more. We also feature tutorials, how-to guides, and weekly webinars to help you navigate the financial markets and find better trading opportunities. You can start trading and investing online by opening a live trading or demo trading account.