Financial instruments are securities that derive their value from an underlying asset, financial indicator, or commodity. They enable traders to exchange specific financial risks within financial markets. Essentially, these instruments allow investors to participate in a range of financial activities without directly owning the underlying asset. Such instruments include futures contracts, options, swaps, and other derivatives.
These financial tools allow traders to hedge against potential financial losses or to speculate on the future performance of the underlying asset. For example, a futures contract allows a trader to buy or sell an asset at a predetermined price on a future date, while options provide the right to buy or sell an asset at a specific price within a set time frame. In summary, financial instruments provide investors with various opportunities to participate in financial markets and manage financial risks. They are essential tools for traders who aim to maximize their profits and minimize their losses.