February 27, 2020

Financial Instruments 101

 

Welcome to the next installment of our “101” series where we cover the basics of the intersection of equity crowdfunding and finance. As we’ll get into offering types soon, it’s important to note the difference between the two. Financial instruments can be thought of as the broad buckets into which the different offering types fall under. This isn’t an all-inclusive list, but simply a short one to educate and further deepen the common investor’s financial knowledge.

 

Financial Instruments

Financial instruments are generally broken into cash instruments or derivative instruments and even categorized by “asset class.” As it can get unduly complex, we’ll simply get over the different instrument types, especially ones the ones most related to equity crowdfunding. 

 

Bond: A financial instrument issued by governments or corporations in order to raise money. Bonds are a debt security wherein the issuer (typically governments or corporations) owes the holders a debt that typically requires the issuer to pay the holder interest at a later date.

 

Loans: Similar to bonds except loans are generally perceived as agreements between banks and everyday consumers/customers. Additionally, bonds are traded quite often whereas loans are non-tradeable.

 

Derivatives: Instruments which derive (hence the name) their value from the value and characteristics of one or more underlying entities such as an asset, index, or interest rate. Common derivatives include futures, options, swaps, and many more.

 

Ownership-Related Terms

Equity: Equity is simply the ownership of assets in a company. For example, you can say, “I have equity in Facebook,” meaning you own a part of Facebook. 

 

Share: Shares are the units of ownership in a company. Using the previous example, you can say, “ I own one share in Facebook”, but not, “I own one equity in Facebook.” 

 

Stock: Stocks represent the ownership of shares in a company. Collectively, all the shares of a company are known as stock. Again, using the previous examples, you can say, “I have one share of stock in Facebook,” because you don’t own the entire stock of Facebook. 

 

This list covers the major financial instruments in finance. It is not meant to be an exhaustive list of financial instruments available, but meant to deepen the new investors’ knowledge of finance. If interested in an in-depth definition and list, you can read this article.

 

As a platform and company involved in the nascent online private markets, our ethos is to provide access to the best analysis and research for everyone. We want to educate everyone so that they become a more confident investor and understand the differences between Reg CF, Reg A+, what an angel is, what qualifies an accredited investor, and more. If interested, signup for KingsCrowd here to find institutional grade, unbiased research and ratings for startups raising on the online private markets for accredited and non-accredited investors. 

 


21
About: Francis vu

An investment professional with a background in private equity and venture capital having spent time conducting investments at VU Venture Partners and Pacific Oak LLC with a finance and management degree from Tulane University.

View Francis vu's articles

Related Items

What is Venture Capital?

Welcome to the next installment of our “101”… ...

public

New Deals for the Week Ending 02/23/2020

Below are the latest equity crowdfunding raises begun this past… ...

crowd

New Deals for Week Ending 09/01/2019

Welcome to the next installment of our “101”… ...

crowd

Get access to the first and only premium analytics and rating platform that enables informed startup investments.

Become an Informed Investor