Lesson 2 of 8 · All lessons in this module
- What the financial system does, and what makes it work well
- Classifying assets and markets: securities, pooled vehicles, currencies, commodities and real assets
- Contracts: forwards, futures, swaps, options and insurance
- Financial intermediaries and the services they provide
- Long, short and leveraged positions: leverage ratio, margin return and margin callsVideo lesson
- Orders: execution, validity and clearing instructionsVideo lesson
- Integrated cases: a leveraged loss, a hedge with a floor and a stop-limit buy
- Primary markets, secondary markets and how trades are arranged
Lesson 2 of 8 · 15 min
Classifying assets and markets: securities, pooled vehicles, currencies, commodities and real assets
Practitioners sort what trades by what it is (security, currency, contract, commodity, real asset) and where it trades (spot or forward, primary or secondary, money or capital, traditional or alternative).
In short
- Securities, currencies and contracts are financial assets; commodities and real assets are physical assets.
- Securities split into debt (fixed income), equity and pooled investment vehicle shares; and into public (registered) and private securities.
- Money markets trade debt maturing in one year or less; capital markets trade longer-lived bonds and equities. Alternative investments (hedge funds, private equity, commodities, real estate…) are hard to trade and value.
- Open-end funds issue and redeem at NAV; closed-end funds trade between investors, often at a discount to NAV; ETFs stay close to NAV because authorised participants arbitrage the gap.
- Real assets are unique and illiquid; REITs and MLPs securitise them into liquid, divisible securities.
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