Tradable Markets
EQUITIES
Equity (stock) represents ownership in a company. When you purchase company stock, you are classified as a shareholder.
For the average investor, shares of a company are purchased on public markets (stock markets/stock exchanges), such as the New York Stock Exchange (NYSE). There are thousands of public companies investors can purchase equity in listed on stock exchanges from Apple ($AAPL) to Tesla ($TSLA) to Netflix ($NFLX), to Chevron ($CVX).
Buying equity in any company means you own a piece of that company and share in the profits or losses they generate. All the companies that allow buyers and sellers to own and trade equity in their company are known as equities.
Equities are generally the most widely known and referenced area of investing by the average person.
EXCHANGE-TRADED FUNDS (ETFS)
An exchange-traded fund (ETF) is an investment fund that generally holds one specific asset class, like stocks, bonds, or commodities.
Most ETFs are considered passive investments, also known as index funds, meaning they track market indexes to replicate the performance of a certain part of the market, whether that's the whole market, a specific sector, or any number of investment themes.
For example, an ETF that tracks the S&P500 index is trying to mirror the performance of companies in the S&P 500®. ETFs trade like stocks on an exchange and their price changes throughout the day, as shares are bought and sold.
MUTUAL FUNDS
A mutual fund pools money from many investors and then invests that pool in a broad range of investments, such as stocks, bonds, and other securities; however, like ETFs, passively managed mutual funds—also known as index mutual funds—are generally limited to a certain asset class.
A mutual fund is managed by a fund manager. When you buy a mutual fund, you buy a stake in everything the fund invests in and any income those investments generate.
Mutual funds make it easy to build a diversified portfolio and get professional management, so you don’t have to research, buy, and track every security in the fund on your own.
OPTIONS
Options are financial instruments that are based on the value of an underlying security such as a stock.
Option contracts offer a buyer the opportunity to buy (in the case of a call) or sell (in the case of a put) the underlying asset at a specified price (strike price) at the contract's maturity. Conversely, option contracts require the seller to buy or sell the underlying at a specific price at the contract's maturity.
Call options and put options form the basis for a wide range of option strategies designed for hedging, income, or speculation. Options are available for most major stocks and indices. Although there are many opportunities to profit with options, investors should carefully weigh the risks.
FUTURES
A futures market is an auction market in which participants buy and sell commodity, index, or other futures contracts for delivery on a specified future date.
Futures are exchange-traded derivatives contracts that lock in the future delivery of a commodity or security at a price set today.
Examples of futures markets are the New York Mercantile Exchange (NYMEX), the Kansas City Board of Trade, the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBoT), Chicago Board Options Exchange (CBOE) and the Minneapolis Grain Exchange. Unlike most stock markets, futures markets can trade 24 hours a day.
CRYPTO
A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend.
Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.
A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.
There are thousands of crypto assets mostly available on crypto-specific exchanges, but many legacy brokers carry the top crypto assets as well. The crypto market is also never closed and trades 24/7 365 days a year.
BONDS
A bond represents a loan you make to a government, municipality, or corporation (issuer). In return, that issuer promises to pay you a specified rate of interest and to repay the face value after a certain period of time, barring default.
Bonds can provide a predictable income stream because they generally pay bondholders interest twice a year. They’re also useful for preserving capital, as they promise to repay the original loan amount upon maturity.
As with any investment, bonds have risks, such as default risk and reinvestment risk. Bonds tend to be less volatile than stocks, but an issuer potentially could default on its loan or call the loan (this is when an issuer returns principle and stops interest payments before the bond matures).
The bond market is also referred to as the debt market, fixed-income market, or credit market and is the collective name given to all trades and issues of debt securities. Governments typically issue bonds in order to raise capital to pay down debts or fund infrastructural improvements.
Publicly traded companies also issue bonds when they need to finance business expansion projects or maintain ongoing operations. Bonds generally trade within their own market, though you can buy many bond ETFs through traditional brokers.
FOREIGN EXCHANGE
The forex market allows participants, such as banks and individuals, to buy, sell or exchange currencies (such as EUR/USD or GBP/JPY) for both hedging and speculative purposes.
The foreign exchange (forex) market is the largest financial market in the world and is made up of banks, commercial companies, central banks, investment management firms, hedge funds, retail forex brokers, and investors.
To trade forex, you will usually have to seek out a forex broker, but some non-forex brokers support select currency pairs as well.
COMMODITIES
A commodity market is a marketplace for buying, selling, and trading raw materials or primary products.
Commodities are often split into two broad categories: hard and soft commodities. Hard commodities include natural resources that must be mined or extracted—such as gold, rubber, and oil, whereas soft commodities are agricultural products or livestock—such as corn, wheat, coffee, sugar, soybeans, and pork.
Most exposure to the commodity markets is through futures contracts available on major exchanges, but there are also commodity producers, ETFs, CFDs, or other correlates listed on most stock exchanges.