A Basic Understanding of Financial Instruments

This introduction is by no means a quantitative one. It has been designed as an introductory and intuitive primer to understand the financial markets with specific focus on the traded financial instruments. I will begin by shedding light on this topic as a whole using the socratic method. Enjoy!

A Series of Preliminary Questions

What is trade? It is an exchange of goods and services. In our case, It is an exchange of assets.

Trade involves two actions that must occur: Buying and selling. They can occur together at the same time or one can precede the other. Nevertheless they ultimately must both occur to be called a trade.

Buying is the act of obtaining x in exchange for payment y. Whilst selling is the act of obtaining y in exchange for payment x.

Each party sits at the opposite side of a trade requires what the other party has.

What is a market? It is the gathering of individuals/entities to exchange goods and services; assets.

Now we can begin to ask: