Free lesson · Trading different assets
Start with the instrument: exposure, ownership and obligations
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Start with the idea
An asset is the economic thing you want exposure to. An instrument is the contract or security you actually buy or sell. Similar price exposure can come with very different ownership rights and cash obligations.
Symbols, units & horizon
- q: signed number of shares or contracts
- M: units per share/contract, positive
- P: reference price in quote currency per unit
- N: absolute reference notional in quote currency
- E: positive account equity in the same currency
- L: reference notional leverage, dimensionless
- |q|: absolute quantity
When and why to use this
Use an instrument card to prevent unit mistakes before sharing a signal across asset classes.
A company share is an ownership claim; a bond is a debt claim; an ETF share is an interest in a portfolio vehicle. A futures contract is an obligation defined by exchange rules. An option gives its buyer a specified right and its seller a corresponding obligation. A token or a derivative referencing it is not automatically equity in a business.
Before writing a strategy, make an instrument card: identifier, venue, quote currency, quantity unit, multiplier, minimum price increment, lot size, contract dates, settlement method and cash-flow rules. A ticker alone is not enough: venues may use the same symbol for different contracts.
Notional exposure is the reference value controlled by a position. Cash paid, collateral posted and possible loss are different numbers. For a fully paid share purchase, cash and notional are close before costs; for a margined derivative, collateral can be much smaller. Options require nonlinear sensitivity measures as well as a reference notional.
The lessons use generic mechanics and explicitly stated units. They are not a broker onboarding flow. Availability, permissions, margin, settlement schedules and tax treatment depend on the precise instrument and account.
Start with the instrument: exposure, ownership and obligations
- Multiply quantity by the contract multiplier to find units controlled.
- Multiply absolute units by reference price to express exposure in money.
- Divide reference notional by account equity for a simple leverage measure. This is not a liquidation threshold or an options risk estimate.
Two contracts, each controlling 50 units at $100, represent |2|×50×100=$10,000 notional. Against $2,000 equity, reference leverage is 5. A 1% linear price move changes value by $100 before costs.
Apply it in a strategy
- Identify the legal instrument and its deliverable or cash settlement.
- Specify quote, multiplier, lot and tick units in the data schema.
- Map financing, expiries and account-currency conversion before evaluating a strategy.
Research deliverable
Write instrument cards for a share, a future and an option on similar exposure and explain their different obligations.
Compare the instrument before choosing a strategy
| Instrument | What the position entails | Start by checking |
|---|---|---|
| Stocks & ETFs | Company ownership or a fund interest | Holdings, distributions, corporate actions, borrow |
| Bonds & bills | A debt claim with contractual cash flows | Maturity, credit, price units, accrual and calls |
| Futures | A margined contract with settlement obligations | Multiplier, tick value, collateral, expiry and delivery |
| Commodity exposure | Physical goods, futures, funds or producer shares | Which wrapper, location, storage and maturity curve |
| Foreign exchange | One currency relative to another through a specific product | Base/quote units, financing and settlement |
| Options | A right for the buyer and an obligation for the writer | Strike, premium, multiplier, exercise and assignment |
| Spot crypto | Token exposure with a custody and transfer arrangement | Asset/network identity, venue, keys and transfer costs |
| Crypto perpetuals | A derivative with funding and collateral rules | Linear/inverse payoff, funding, mark and liquidation |
| Event contracts | A payout determined by a resolution rule | Settlement source, executable quote and event concentration |
Research sources, review dates and limitations
Python implementation
Self-contained teaching example. Python 3.10+; dependencies and input conventions are shown in the code and notation. Run in your own Python environment.
def reference_exposure(quantity,multiplier,price,equity):
if multiplier<=0 or price<0 or equity<=0: raise ValueError("Positive multiplier/equity and nonnegative reference price required")
notional=abs(quantity)*multiplier*price
return notional,notional/equity
print(reference_exposure(2,50,100,2000))Continue learning
Trading Different Assets: Instruments, Mechanics & Risk — all lessons- Start with the instrument: exposure, ownership and obligations
- Stocks and ETFs: shares, dividends, shorting and fund structure
- Bonds and bills: lending, accrued interest and settlement cash
- Futures: multipliers, ticks, margin and expiry
- Commodities: spot goods, storage and the futures curve
- Foreign exchange: two currencies, one quote and financing
- Options: rights, premiums, exercise and nonlinear exposure
- Spot crypto: tokens, venues, wallets and execution
- Crypto perpetuals: funding, mark prices and liquidation
- Event contracts: resolution rules and probability-priced exposure
Quantitative finance and development glossary · Python resources and libraries · Research sources and limitations