An Asset Class is a category of assets that have similar characteristics, attributes and risk-return relationships. They are generally traded in the same financial markets and are subject to the same rules and regulations.
The Major Asset Classes
- Equities or Stocks
- Bonds and Fixed Income
- Real Assets
In recent times this has expanded to include:
- Pooled Investments
In major institutions each of these asset classes would have a dedicated trading desk on a trading floor.
The Different Asset Classes
Equities or Stocks
Equities are shares or stocks of ownership issued by publicly-traded companies. They are traded on centralized stock exchanges such as the NYSE or NASDAQ. The equities asset class is often subdivided further by market capitalization i.e. small-cap, medium-cap and large-cap stocks. This asset class is considered a risky asset class.
Bonds and Fixed Income
Fixed income instruments include predetermined payment schedules that usually include interest and principal payments. These contract are promises to repay borrowed money. Corporations and Governments issue bonds and notes. Shorter term maturities are called ‘notes’ and longer term maturities are called ‘bonds’. These instruments are called money market instruments. These instruments are considered low risk compared to other asset classes such as Equities.
The primary advantage of cash or cash equivalent investments is their liquidity. Money held in the form of cash or cash equivalents can be easily accessed at any time.
Real estate and other physical assets offers protection against ‘inflation’. The tangible nature of such assets also leads to them being considered as more of a “real” asset.
Commodities include precious metals, energy products, industrial metals, agricultural products, and ‘carbon credits’. You may trade these ‘On The Spot’ Market buying and selling at current prices. To trade at a future price you would use the futures market.
These investment vehicles are mutual funds, trusts, and hedge funds. They allow investors shared ownership of the securities the investment vehicle hold. These ‘funds’ are managed funds.
Mutual Funds are investment vehicles that pool money from a number of investors for investment in a diversified portfolio of securities.
Exchange Traded Funds or ETFs are open-ended funds that investors can trade amongst themselves in secondary markets.
Hedge Funds are investment funds that are organized as limited partnerships whereby the hedge fund managers are the general partners.
Contracts are agreements that traders have between each other to do something in the future. Contracts include Forwards, Futures, Swaps, Option and insurance contracts. The values of the the contracts are dependent upon the Underlying asset that the contract refers to. The underlying asset maybe a commodity, a security, an index, a currency pair or basket thereof.
A contract may refer to a physical item or a cash settlement in the future. For example a physical contract could be a contract to buy tomatoes at a pre determined price and receive the tomatoes at a future date. Other physical examples can include the delivery of financial instruments such as bonds, equities or futures contracts even though the delivery is electronic. These would be considered Physical or Financial dependent on the underlying asset. Examples of assets considered ‘Physical’ include contracts for the delivery of Oil, Gold or Hogs. Examples of assets considered ‘Financial’ include option contracts, Stock Indexes, Currencies and credit default swaps.
Contracts For Difference CFDs
These contracts allow traders to speculate on price changes for the underlying asset. A dealer or broker will sell the CFD to a trader and when the trader sells the CFD back to the dealer they receive any appreciation in the underlying asset’s price between the time they bought it and the sale back to the broker. If the underlying asset depreciates during this time the trader pays the dealer. CFDs are derivatives because their values are derived from the underlying asset and they are settled in cash as there is no ownership of the underlying asset at anytime.
Virtual Trading Desks
VTD provides the trader the opportunity to join a trading desk of their choice dependent on the asset class they are trading. They can join one or more or all of them. There is no fee and there never will be. The current trading desks include:
- Equities Trading Desk
- Commodities Trading Desk
- Futures Trading Desk
- Forex Trading Desk
- ETF Trading Desk
- Indices Trading Desk
- Options Trading Desk
- Cryptocurrencies Trading Desk