Remote Viewing the Financial Markets - Part 2 - Financial Products

You really don't have to know this stuff to do RVFM: the DVD does a good job of introducing the subject.

The bulk of the financial markets are broadly broken in to five categories: equities, bonds, futures, options, and foreign currency exchange.

In short:

Equities - a portion of the value of a company
Bonds - a portion of a debt a company
Futures - a contract to acquire a quantity of a equity or commodity at a future date at a fixed price
Options (or CALLS and PUTS) - a option to buy or sell an equity by a future data at a fixed price
Foreign Currency Exchange (FOREX) - trading on the relative value of foreign currencies

In long:

Equities -

This is purchasing "equity" in a company. Equity is a component of value in the existance of the company. This is exactly like "equity in your house" except that your house has intrinsic value and the value of a company is a summation of its tangible and intangible properties. A gold mining company has the mine property (real property), and equipment (assets property) as tangible properties; it has employment contracts with clever geologists and mining engineers and business managers that make the company work as intangible properties. To some degree, any intellectual property (patents on a novel gold extraction process, for instance) and also potential properties. Valuating a gold mine with a good mine and bad people or a bad mine and good people, etc, allows you to determine what the value of the company is.

When buying equities you're trading MONEY for "stock", which is a portion of the company's value. Your REWARD is that the stock will GO UP IN VALUE over time, and your RISK is that it won't.

Equities are "bullish" investments: looking for the stock to GO UP IN VALUE (bulls poke up with their horns).

"Mutual Funds" are basically bundles of equities with a few exceptions (see below) which are traded as if they are equities, but can only be traded once a day.

"Exchange Traded Funds" (ETFs) are basically bundles of equities with a few exceptions (see below) which are traded exactly like they are equities.

Stocks, Mutual Funds, and ETFs are identified by the exchange they are traded on and "ticker symbols":

NYSE:IBM ::= New York Stock Exchange - International Business Machines Corporation

NASDAQ:MSFT ::= National Association of Securities Dealers Automated Quotations - Microsoft Corporation

NYSE:SPY ::= State Street Global Advisers SPDR ("spiders") Exchange Traded Fund (based upon the Standard & Poor's 500 index of 500 largest equities traded on American markets)

When selling equities you're trading "stock" for MONEY; your expectation is that the stock is going down in price. It is possible to legally sell stock you don't own; the process is called "shorting". Basically you sell high and buy low in that order (!?!) The missing stock is "covered" by other stocks and money in your trading account. (Although the very wealthy and connected can do it another way; see: Crime of the Century: Naked Short Selling)

Bonds - 

This is basically debt. A bond is a loan of money to a company with a fixed interest rate and a due date. After the real property and assets of a company are added up, the value of bond issues is subtracted and that gives you the liquidation value of the company (the MONEY you can get if the company ceased to exist and its real property, assets, and intellectual property was sold).

(Normally, when a company goes bankrupt, the debt-holders are paid first, then the equity-holders. A grand exception to this was the GM "bailout", where the bond-holders got completely screwed and the equity in the company was given to the auto workers unions. Don't buy GM stock or bonds ever...)

Treasury bonds and municipal bonds are debt the government owes to bond-holders with interest paid from taxes.

Bonds can be traded before they "mature" (debt contract has met its expiration date), and speculation in bonds is based upon the future value of the debt versus the future value of the money your trading.

There exist Mutual Funds that are made up entirely of bond investments.

Futures -

Futures are "derivatives"; they are not equity, debt or commodity, but a speculation on the value of equity, debt, or commodity at some time in the... future. Two parties agree (a "contract") upon a value and a time and exchange money. The money is generally for a fraction of the value of the item the contract is based upon. Investing in futures is different from equities and bonds in that the contract and target a price that might be higher or lower than the current price. Your REWARD is more value if the value of the underlying asset moves in the direction of your speculation. Your RISK is that it doesn't PLUS. And futures are also LEVERAGED: you are putting up only a fraction of the value of the underlying asset, and the REWARD and RISK are the ENTIRE value of the underlying asset relative to the contract (!?!). YES, THAT SHOULD BE SCARY.

Futures typically trade equities (stocks are the underlying value) or blocks of equities (Exchange Traded Funds), or commodities (gold, wheat, corn, pork bellies, orange juice (See: Trading Places))

(Some Mutual Funds and ETFs use futures to create their products. There exist "bearish" ETFs that speculate on the market declining (you buy the ETF looking for its price to go up when the prices on the underlying market go down.)) (Bears pull DOWN with their claws.)

Options - 

An option is a "derivative", typically on an equity or another derivative (and you wondered why there are "bubbles"?) An option is a bet that a stock will go in a particular direction in a particular period of time. If at the end of that period of time the stock meets that goal, the option holder gets to buy or sell the equity at that price. The option has a "premium" which is a value (a small fraction of the price) that the buyer will lose if the stock does not meet that price.

A CALL goes UP in value as the stock goes UP but also loses value over time; a PUT  goes UP in value as the stock goes DOWN, but it also loses value over time.

Options can be bought or sold but not necessarily in that order (!?!):

Buy Call option - expect the stock to go UP
Sell Call option - expect the stock to go DOWN or SIDEWAYS
Buy Put option - expect the stock to go DOWN
Sell Put option - expect the stock to go UP or SIDEWAYS

The most common usage is to buy a PUT as an "insurance policy" against the stock going down in prices, and selling a CALL is like paying yourself a dividend (a "covered call", where the CALL you are selling is covered by the stock you own.)