Types of Underlying Assets

1. Financial Claims or Stocks

The stock is defined as the financial claim which represents proportionate ownership of the investor or holder towards the earnings and overall assets of the issuing business. Stocks can be bifurcated into common and preferred stocks. Stocks are primarily issued with the intent of raising finance to fund business operations or high growth projects.

2. Debt Securities or Bonds

Bond is defined as the financial instrument that gives fixed interest payments to the holder. Corporations and government institutions issue bonds to raise finance with the intent to fund business projects or government projects. The holder of such instruments is termed as creditors of debt.

3. Exchange Traded Funds

Exchange-traded funds are defined as the special variant of the mutual fund whose benchmark is the underlying index. It is basically a group of securities encompassed as one unit.

4. Market Index

The market index is defined as the collection of securities. The collection could be focused on one specific area of the financial market. These are designed to assess the performance of the financial markets. The index is employed to develop passive investment strategies.

5. Currency

Currency is defined as the instrument of monetary exchange replacing traditional barter system wherein such medium is broadly acceptable in the specific country. Different countries may have different currencies. The most common and popular acceptable currency across the globe is that of United States dollars wherein many countries have performed dollarization to meets its currency requirement equivalent to global standards.

6. Commodities

The commodity is defined as the instrument which is employed in business and commerce-related activities. These items are input for general commerce and production of business activities. Gold and silver are the most popular commodities that are traded over the commodities market.