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Futures and Options are different than stocks in that they are derivatives, which means that their value is based on another asset — such as commodities, shares, currencies, etc. They are contracts — based on the fluctuation of underlying assets — rather than ownership of the asset itself.

How does the stock market work?

The ‘stock market’ is a broad term that encompasses a collection of markets where the regular buying, selling, and issuance of stocks in publicly held companies takes place.

The stock market is an umbrella term for these markets. The stock market is made up of various individual stock exchanges. The most well-known of these stock exchanges in the United States are: the New York Stock Exchange (NYSE), Nasdaq, the Better Alternative Trading System (BATS), and the Chicago Board Options Exchange (CBOE). These exchanges — along with several others — make up the U.S. stock market.

While it is called the ‘stock market’ (or the ‘equity market’), other financial instruments — such as bonds, commodities, currencies, and derivatives — are also traded on the stock market.

What are stocks vs. other instruments?

Bonds are different from stocks. Unlike stocks, bonds are debt-based, which means investors lend money to the company or government issuing the bond and in return, receive interest. The holder of a bond does not have ownership in the company — however, they may have more protection than a stockholder. Another difference between stocks and bonds is that stocks are usually traded on an exchange, whereas a bond is usually over the counter (the investor needs to deal directly with the issuing company, government, or other entity).

Futures and Options are different than stocks in that they are derivatives, which means that their value is based on another asset — such as commodities, shares, currencies, etc. They are contracts — based on the fluctuation of underlying assets — rather than ownership of the asset itself.