What is the difference between stocks, bonds, futures, options and derivatives?
In: Economics
Stocks are pieces of a company. Owning a stock gives you a share of any dividends the company pays out according to how many shares you own and vote on directors with one vote for every share you own.
Buying a bond is like issuing a loan or buying debt from the loan issuer.
Futures are contracts to buy an asset at a future date
Options are contracts like futures, except the buyer can refuse the purchase when the option date comes up
Stocks = ownership of a company, and a claim to its earnings and assets.
Bonds = corporate/government version of an IOU, that pays a fixed rate of interest at fixed intervals.
Futures = agreements between two parties that stipulates a standardized amount of some commodity (oil, for example) will be transacted at a later point in time, at a certain price.
Options = another form of derivatives. Like futures, options stipulate that a certain amount of stock will be transacted at a certain price at a certain point in the future.
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