Who this page is for — Readers who need to answer the question “what exactly am I trading?” before discussing charts, signals or strategies.
A name on a screen does not identify the instrument by itself. “Gold” may refer to physical metal, a futures contract, a fund share, an ETC or a CFD. “S&P 500” may refer to the index, an ETF, a futures contract, an option or an OTC derivative. These objects may follow similar prices, but they incorporate different rights, costs, expiries, counterparties and risks.
This is the gateway to Cyclepedia's Markets and instruments cluster. Its purpose is not to indicate which product to buy, but to provide a common taxonomy for recognising the economic exposure and the legal and operational form through which it is assumed.
The three questions that prevent most misunderstandings
1. What is the economic exposure?
It is the factor whose value can affect the result: a company, a basket of securities, an interest rate, a currency, a commodity, an index or another variable. The exposure is often called the underlying, but not every instrument gives direct ownership of that underlying.
2. What is the instrument?
It is the right or contract actually held:
- a stock represents an ownership interest in a company;
- a bond is a debt security issued by the borrower;
- an ETF share represents an interest in a fund;
- a futures contract binds the parties under the contract specifications;
- an option gives the buyer a right and imposes a potential obligation on the seller;
- a CFD is a contract with the intermediary on a price difference.
3. Where and with whom is it traded?
The same type of exposure may be traded on a regulated exchange, another organised market or through an over-the-counter (OTC) relationship. Price transparency, access rules, clearing, custody, liquidity and counterparty risk all change. The global foreign exchange market, for example, is largely OTC; listed stocks and ETFs instead trade on execution venues, although off-exchange transactions may also occur.
Asset classes and instrument forms
An asset class groups exposures with similar economic characteristics. An instrument is the specific vehicle. Confusing the two levels leads to faulty comparisons.
| Exposure or class | What it represents | Common forms |
|---|---|---|
| Equity | Risk capital in a company | stock, fund, ETF, futures, option, CFD |
| Fixed income | Credit extended to a government, entity or company | bond, fund, ETF, futures, swap, CFD |
| Currencies | Relative value between two currencies | spot FX, forward, swap, futures, option, CFD |
| Commodities | Fungible physical goods or their prices | physical, spot, futures, option, ETC/ETP, CFD |
| Indexes | Statistical measure of a basket | ETF, futures, option, certificate, CFD |
| Digital assets | Tokens or exposure to their price | spot token, ETP, futures, option, perpetual, CFD |
| Cash | Money and very short-term instruments | deposit, money-market security, money-market fund |
An equity ETF belongs economically to the equity class, but the object held is a fund share. An oil futures contract belongs to commodities by underlying, but it is a derivative with margin and expiry. The taxonomy must preserve both levels.
Essential operational comparison
| Instrument | Legal and economic position | Expiry or settlement | Typical contractual margin | Distinctive risks |
|---|---|---|---|---|
| ownership interest and residual claim | no expiry | none for a cash purchase | company, market, liquidity, dilution | |
| interest in a managed portfolio | generally no expiry | generally none; leveraged structures differ | tracking, costs, premium/discount, structure | |
| claim against the issuer | contractual repayment; exceptions exist | none for a cash purchase | rates, credit, liquidity, early redemption | |
| exchange of one currency for another | agreed settlement date, not expiry | none for deliverable exchange; a retail account may require it | exchange rate, liquidity, counterparty, retail leverage | |
| standardised contractual obligation | contractual expiry | yes, performance bond and daily variation | leverage, expiry, basis, roll, delivery | |
| buyer's right; seller's obligation | contractual expiry | premium for the buyer; possible margin for the seller | nonlinear payoff, time, volatility, assignment | |
| contractual claim or liability against the provider | under the provider's terms | generally yes | counterparty, financing, spread, liquidation |
Margin, financing and leverage are not synonyms. A cash purchase can be financed through the account; futures margin is a performance bond; an option buyer pays a premium while the seller may have to post margin. “No expiry” does not mean the absence of costs, corporate actions or fund-closure risk.
Spot and derivatives are not synonyms for simple and complex
In the spot market, the transaction concerns the asset or security with cash settlement. In a derivative, the value depends on an underlying and the rights are defined by the contract.
The distinction remains fundamental, but it is not enough:
- a spot stock may have several classes, different voting rights and poor liquidity;
- a spot bond contains credit risk, interest-rate risk, covenants and a maturity;
- an ETF may hold securities, use synthetic replication or pursue a daily leveraged objective;
- a standardised futures contract may trade in a more transparent and liquid market than a thinly traded cash security;
- different products may use the same commercial ticker or a similar abbreviated description.
Complexity must therefore be assessed from the actual contract, not from the label “spot” or “derivative”.
A checklist before looking at the chart
- Legal name and identifier — What is the full name? Is there an ISIN, contract code, expiry or share class?
- Right held — Ownership, fund share, debt claim, option right or contract with the broker?
- Underlying and replication — What produces the return? Physical holdings, basket, derivatives, index or formula?
- Issuer and counterparty — Who must perform? Is there a clearing house?
- Venue and price formation — Exchange, multilateral market or OTC? From which market does the displayed price come?
- Currency and settlement — In which currency are the quote, P&L and cash flows stated? How and when does settlement occur?
- Leverage, margin and loss — What is the notional amount? Who can demand more margin or liquidate the position?
- Expiry and events — Are there expiry, exercise, delivery, roll, early redemption or corporate actions?
- Liquidity and total costs — Are spread, commissions, financing, fund costs, foreign exchange, market impact and tax considered separately?
- Documents — Do the prospectus, KID, contract specifications and issuer reports confirm what the interface shows?
Common mistake — Choosing position size from the margin requirement. Margin is contractual collateral, not the maximum loss or a complete measure of risk.
Reading path
Foundations
Main exposures
Contracts and leverage
To distinguish crypto-assets, networks, staking, venues, perpetuals, and custody, use Digital assets and crypto markets.
Futures structure
The contract is only the starting point. This path separates contractual events, price relationships, and strategy results:
- Expiry and settlement — last trading, final settlement, and delivery;
- Futures basis — sign convention, fair value, convergence, and basis risk;
- Futures curve — a simultaneous expiry snapshot, shift, twist, and curvature;
- Contango and backwardation — local regimes, not directional forecasts;
- Futures roll — two legs, timing, recalibration, and execution costs;
- Roll yield — stated measure, decomposition, and interpretation limits.
Options and volatility
The Options and volatility vertical is now published. It starts from the contract and connects premium, option chain, implied and realized volatility, term structure, surface, put-call parity, exercise, multi-leg payoffs and Greeks. The path always distinguishes terminal payoff, pre-expiry value, tradable quote and model output.
From contract to execution
Identifying the instrument correctly is the prerequisite; it does not yet explain how an order reaches the market. Order types, books, priority, routing, fill quality, clearing, and custody belong to the next cluster: Orders, execution and market microstructure.
Keeping these layers separate prevents two common errors: a contract's legal features do not determine execution quality by themselves, and the price shown for an underlying is not necessarily the obtainable price of the instrument actually traded.
Sources
- U.S. Securities and Exchange Commission, Investor.gov, Investment Products and Introduction to Investing.
- Banca d'Italia, L'economia per tutti, Cosa sapere prima di investire and Cos'è la borsa?.
- Banca d'Italia, Glossario delle tipologie di strumenti finanziari.
- Bank for International Settlements, About derivatives statistics.
- U.S. Commodity Futures Trading Commission, Futures Market Basics.