Instrument Definition – What is Instrument? | CFI LB

instrument

Financial instruments are anything that can be used for trading, mainly for speculation or hedging purposes. These include, but are far from limited to Stocks, Forex, Commodities, Indices, ETFs.

 

The reason for the existence of such a vast range of financial instruments is that traders and brokers wish to have a variety of trading options at their disposal, with each one serving a unique purpose that can be utilized to render different outcomes.

 

Types of instruments

 

Financial instruments are largely categorized under one of two types: cash instruments and derivative instruments.

 

Cash instruments

 

Cash instruments refer to securities that are easily transferable and where the holder will often take possession of the underlying asset. For example, bonds, stocks, and shares are cash instruments.

Cash instruments can also be subcategorized into equity-based and debt-based instruments. They can also be divided into either long-term or short-term.

 

Derivative instruments

 

Derivative instruments are linked to a variety of products but what is truly traded is their underlying value and the holder will not take physical possession of the asset.

 

Forex

 

As financial instruments, Forex cannot easily be classified under the above categories. This is because depending on how you trade forex, it could fit into either.

 

Spot forex trading does involve an actual transfer of the asset and would therefore make it a cash instrument. However, it is most commonly traded through CFDs, Options, and Futures which only trade on the value of the asset derived from the spot market. Subsequently, trading Forex through any of these instruments would be classified as derivatives.

 

Key takeaways:

 

  • There are a wide range of instruments available to be traded, each with their specific utilities and considerations
  • Most instruments fit into two main categories: cash instruments and derivative instruments
  • Forex could be either a cash or derivative instrument, depending on how it is traded
CFI Financial Group is an award winning global financial markets provider with over 23 years of experience and regulated entities in several jurisdictions, focused on offering impeccable execution and trading conditions including very low spreads, professional services, dedicated support and powerful tools.
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Credit Financier Invest - CFI LEBANON
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1019238,
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Malek Avenue, Achrafieh

CFI provides execution-only services and does not provide any investment advice. To make an investment decision, you cannot rely on the content of this website, or on any information, opinion, report or other materials (“Information”) you receive from CFI, or its representatives. Such Information is general and does not consider your objectives and your financial situation, thus they shall not be considered in any way as an express or implied promise nor a guarantee of any profit or limit of loss. CFI shall not bear any liability in case you used or relied on such Information. Please ensure that you make your own research and seek independent advice if necessary.

Forex and CFDs are leveraged products that incur a high level of risk. A small adverse market movement may expose the client to lose the entire invested capital. The majority of retail client accounts lose money when trading in CFDs. Please be aware of trading risks and that you could sustain a loss exceeding your deposited funds, even if a stop loss is used.

CFI Lebanon is regulated by the Banque du Liban and the Capital Markets Authority

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