What is a financial instrument?

A financial instrument is any asset or bundle of assets that can be traded. The ability to buy and sell is part of the definition of a financial instrument, as is the fact that they can be traded anonymously among people who have never met each other.

Where have you heard about financial instruments?

If you are an investor, your financial adviser will have discussed with you the desirability, or otherwise, of buying various financial instruments: shares, bonds, derivatives and so on. Media specialising in personal finance will seek to guide viewers and readers through the different financial instruments.

What you need to know about financial instruments...

They're usually identical to many other assets, such as shares in the same company, and will be in a standardised format. Some carry rights, to an income in the case of bonds, to a say in the company's affairs in the case of shares, and others do not.

Beyond the conventional financial instruments such as shares, bond, commodities and money-market instruments there are derivatives such as futures and options whose value is linked to that of the 'underlying' instruments from which they are derived, hence the name. Commercial paper and packages of loans are also financial instruments.