FINANCIAL INSTRUMENTS are monetary contracts between parties. They can be created, traded, modified, and settled. They can be cash(currency), evidence of an ownership interest in an equity or a contractual right receive or deliver.
Financial instruments may be categorized by “asset class” depending on whether they are equity-based or debt-based. If the instrument is debt-based, it can be further classified as short-term or long-term.
Also, there are foreign exchange instruments and transactions that are neither debt nor equity-based. They have their own category.
What is CryptoCurrency Trading?
Crypto currency trading is an act of speculating on crypto currency price movement via a CFD trading account, or buying and selling the underlying coins via an exchange.
How Does CryptoCurrency Market Work?
Cryptocurrency markets are decentralized, which means they are not issued or backed by a central authority such as a government. Instead, they run across a network of computers.
However, cryptocurrencies is a digital platform and it can be bought and sold via exchanges and stored in ‘wallets’.
Unlike traditional currencies, cryptocurrencies exist only as a shared digital record of ownership, stored on a blockchain.
When one user has to send cryptocurrencies to another user, he/she has to send it to that user’s digital wallet.
What Are Traditional Financial Instruments?
In finance, the term “traditional investments” refers to putting money into well known assets (like bonds, cash, real estate, equity shares etc.) with the expectation of capital appreciation, dividends, and interest earnings.
Traditional Financial Instruments in Crypto Market
The Crypto Market has been brutalizing lately but many traders lack the knowledge of the plethora of financial instruments that are out there.
Each of these instruments offers the investors a new way to make a come back in the crypto market without even relying on the highs and lows of cryptocurrency prices in a volatile market.
Lets see what are these alternatives and do they even help and let the investor crack what they wish for?
In most cases, few new products emerging in the crypto market are a repetition of services that have already existed in old times in the world of finance.
For example bonds, they have been kicking around in the finance world for more than 500 years now. Back in 1694, they were issued by the Bank Of England to raise a fund against a war with France.
How Do They Work?
In essence, they are a fixed amount of income instruments.
Lenders give businesses the money that they require to obtain their aspirations, with borrowers usually receiving interest rate payments once per year until the full amount of the loan becomes due. Well talking about interest, it can fluctuate based on variable rates or it may be fixed.
Bonds have already been gaining momentum with the World Bank, constantly being in the headlines back in 2018.
The hope is that the crypto bonds could help enable blockchain- based businesses to generate monetary help to grow- offering them an alternative from ICO’s, which have had something of a torrid time of late.
Though research in October have suggested that more than $20 billion has been raised through initial coin offerings since the start of 2017, he rate has been slowing lately
The Future
In simple words, a futures contract is an agreement to buy or sell a certain product on a fixed date. Futures are used as both an instrument for mitigating risks associated with price volatility of different commodities as well as tradable derivative products.
Futures: The Future?
Futures have been a hot topic of discussion in the crypto market for a long time now.
These talks have rumbled through right up to the present day, with the volatility seen in the crypto maret showing no signs of abating.
Rather than being used as a mechanism that helps to boost profitability, futures are often seen as an instrument to mitigate risk.
Why is This a Compelling Financial Instrument?
Let’s say the value of bitcoins is going to rise in the coming months/weeks. Then you can buy a three month contract for one Bitcoin at the current price and receive it at contract’s conclusion, If the price of Bitcon rises dramatically over these 90 days, you would be buying it at the same price, resulting in a huge and good profit.
No doubt this can work reversal also.
Other Options:
If you feel futures are the future then you can choose options as an option for yourself.
These instruments mean that you have the right to buy and sell. Bitcoin at a particular price when the options mature, but you are not obliged or pressured to complete the transaction.
There is usually a premium for using these financial services.
Bonds, futures and options are just the beginning to flourish in the industry of this.
Like – Bibox,an Al-driven exchange,has just launched bonds, aiming to give new opportunities to traders
This all information is just a reference for the users, It is suggested that traders should do their own research before taking any actions related to the company and should carry their full responsibility for their decision.