Types of instrument
You'll learn the key differences between over-the-counter (OTC) and exchange-traded instruments, and when to use each in financial markets.
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In this lesson
- 0:00 Two main types of financial instruments
- 0:30 Over-the-counter instruments explained
- 1:08 Exchange traded instruments explained
- 2:47 Comparing OTC and exchange traded advantages
- 4:44 Risk and accessibility considerations
About this lesson
This video explores how OTC instruments are privately negotiated contracts tailored to your specific needs, while exchange-traded instruments are standardised and traded publicly on exchanges. You'll discover the advantages of each type—customisation and privacy for OTC versus liquidity and price transparency for exchange-traded—and the critical risk and accessibility considerations that should guide your choice. Understanding these instrument types is essential for managing financial risk effectively. OTC instruments like swaps, forwards, and bonds allow you to hedge specific risks that may not be widely traded, but they carry higher counterparty risk and are typically only accessible to large institutions. Exchange-traded instruments such as futures, options, and stocks offer better liquidity, transparent pricing, and easier exit strategies, making them more accessible to retail investors. This foundation will help you make informed decisions about which instruments best suit your organisation's risk profile and transaction requirements.
Duration: 6m
Transcript
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