What Is Financial Instruments ?


As I mentioned earlier, the financial market is a place where sellers and buyers meet to buy and sell goods and services. The goods and services of the financial market are financial instruments.

Investors or wealthy people can invest in these financial instruments to earn different returns.

Here are some financial tools you can invest in:

(1).Equities Market

(2).Bonds Market

(3).Commodities Market

(4).Derivatives

(5).Commercial Paper

(6).Other

EQUITIES MARKET

Securities are a financial instrument that can help business owners or companies that lack money to run a business can raise funds from the public by issuing shares to raise money from the sale of shares to use in their business.

For those who buy or invest in stocks i.e. Buyers or Investors are getting the following four main benefits:

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INVESTMENT GAINS

One of the main benefits of investing in equity securities is the opportunity to increase your money by increasing the value of the shares you buy.

DIVIDEND IMCOME

When you invest in equity securities or stocks, you get paid in the form of dividends that the company makes a profit on.

OWNERSHIP

Purchasing a title deed or stock means taking ownership of the company in which you purchased the shares.

DIVERSIFICATION

For investors who like to invest in many types of financial instruments (for hedging purposes), investing in equity securities or stocks is beneficial in providing diversification

Currently in the Kingdom of Cambodia, there are 7 companies listed on the Cambodia Securities Exchange, including:

1. Phnom Penh Water Supply Authority (2012)

2. Grand Tween International Factory (2014)

3. Phnom Penh Autonomous Port (2015)

4. Phnom Penh Special Economic Zone (2016)

5. Sihanoukville Autonomous Port (2017)

6. ACLEDA Bank (2020)

7. Pestech (Cambodia) Plc. (2020)

BONDS MARKET

Bonds are fixed income financial instruments that represent loans made by creditors or investors with debtors or borrowers whose debtors are usually companies or governments.

When you invest in a bond, you are investing in a lender, just as you would lend money to a lending company, and they will give you back the interest rate.

It is a financial instrument that provides an opportunity for those who need capital to announce the sale of their bonds to the public as investors.

Investing in bond purchases is less risky than investing in equity securities, but the rewards are lower than investing in equity securities.

The benefits of bond investing are:

Fixed Income

Investors get a steady income because bond investing provides a fixed income from interest payments from the beginning of the investment until the maturity of the bond.

Preservation of Capital

Capital protection is a conservative investment strategy whose main goal is to protect capital and prevent losses in the portfolio.

Low Risk

The risk is low that if the company goes bankrupt as a creditor, you will be the first to get your capital back, unlike the shareholders who will be the last.

Currently, in the Kingdom of Cambodia, there are 6 companies registered to sell their bonds with the Cambodia Securities Exchange, such as:

1. HATTHA Bank (2018)

2. LOLC Microfinance Institution (2019)

3. ABA Bank (2019)

4. Phnom Penh Commercial Bank (2020)

5. RMA (Cambodia) Plc. (2020)

6. PRASAC MFI (2020)

COMMODITIES MARKET

Commodities are any goods or meterials that can be traded, and trading is conducted on a Commodities Exchange structure with clear rules such as Chicago Mercantile Exchange (CME) in the United States or London Metal Exchange (LME) in the UK.

Commodities are divided into two major groups.

(1) .Soft Commodities

Soft commodities was devided into two type

(A).Agricultural products such as rice, corn, beans, cashews, etc.

(B).Live stock and meat such as pork, pork head, beef and beef cattle, etc.

 

(2) Hard Commodities

(A).Metals include gold, platinum, copper, lead, etc.

(B).Energy products such as crude oil, gas, etc.

Investment Method

Methods of investing with Commodities can be done in the following ways:

(A).Sport Prices

(B).Futures Prices

(C).Option Prices

(D).CFDs

(F).Share Dealing

DERIVATIVE MARKET

Derivatives market is a market that allows investors to trade on the futures contracts of the original financial instruments, such as foreign exchange currencies, precious metals (gold, silver), crude oil and other commodities.

Derivative Contract Type

Derivatives trading is generally done in the following four forms:

1. FORWARD CONTRACT

FORWARD CONTRACT is a private agreement between two parties to buy or sell financial assets for a specific price at a specific date in the future. This contract does not have to go through a licensed stock exchange, so it is a trade referred to as OTC (Over The Counter) trading.

2. FUTURES CONTRACT

In general, the FUTURES CONTRACT is similar to the FORWARD CONTRACT, but there are two main differences.

(A).First, FUTURES CONTRACT is traded only on the stock exchange.

(B).Second, the value of the FUTURES CONTRACT changes daily based on the value of its underlying assets.

3. PTIONS CONTRACT

PTIONS CONTRACT is different for both FORWARD CONTRACT and FUTURES CONTRACT. It is a contract that gives the parties the option to buy (CALL) or sell (PUT) financial assets at a specific price, called STRIKE PRICE, at a specific date.

4. SWAPS CONTRACT

SWAPS CONTRACT is a derivative tool used by companies and generally does not work for traders (Traders) without specific capital, although some brokers offer them.

SWAPS CONTRACT involves two parties exchanging financial instruments, such as interest rates, through a third party.

SWAPS CONTRACT is a derivative contract made through two parties exchanging cash flows or liabilities from two different financial instruments. Most swaps involve cash flows based on the Notional Principle Amount, such as Loans or Bonds, although this tool can be used on almost any financial instrument.

COMMERCIAL PAPER

A COMERCIAL PAPER is a type of financial instrument that is an unsecured and short-term debt issued by a corporation that is commonly used to finance payroll, accounts payable, inventory and other short-term liabilities.

Deadlines on portfolios usually last the last few days and are rarely longer than 270 days.

A COMMERCIAL PAPER is usually issued at a discount from its inscribed value and reflects the general market interest rate.

OTHER TRADING PAPER

Other is a type of financial instrument that is an unsecured and short-term debt issued by a corporation or by a government.

Thanks for reading this article, if you have any questions or doubts, please drop your comments in the comment box below.

You can watch the videos that talking about the What is Financial Instruments by Click Here or other videos such as

(A).What is Financial Market?👉 Click Here

(B). Financial Institution 👉Click Here

(C).Financial Market Classification 👉Click Here

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3 thoughts on “What Is Financial Instruments ?”

  1. admin says:

    If you have any questions or doubts, please drop your comments here – Thanks

  2. Cogito says:

    Thank you for very interesting article. Im just starting my adventure with financial markets and posts like this are extremely helpful. There is so many things to learn and understand and you were able to describe basic financial instruments in clear and transparent way. Its definitely big help for all beginners, and Im looking forward for your next posts!

    1. admin says:

      Great thank for your comment. I will post more articles related the financial market and investment tool articles, very appreciated.

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