Financial Instrument

If you start trading in Future & Option (FnO) without having the knowledge of FnO, you will have no Future & left with no Option.

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FnO is a type of derivative contract.

Derivative => 

- it means a by-product of something.

(For Science Student -> Derivation in mathematics)

(For Economic Student -> Financial Instrument is a derivative) 

example:-

Milk ---> Tea, Coffee 

Sugarcane ---> Sugar 

Here Tea, Coffee, and Sugar are the derivatives of their underlying asset which is Milk and Sugarcane. 

I think you have got an idea of what derivative means.

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Financial Instrument =>

- A Financial Instrument is an asset that can be traded.

- A Financial Instrument is a real or virtual document representing a legal agreement involving any kind of monetary value. 

Financial Instrument ---> Tradable, Legal Agreement, Monetary Value

Financial Instrument is - 

1. Derivatives (Indes, Shares, etc)

2. Cash (Bond, Cheque, etc)

3. Asset Class (Debt-based, Equity-based, Forex, etc)

example:-

Shares [Tradable(✓) Legal Agreement(✓) Monetary Value(✓)]

Shares are (Tradable) on the stock market and you spend money (monetary value) to buy them after buying you receive a share certificate (Legal Agreement) so Shares are a Financial Instrument.

Debentures --> [Tradable(✓) Legal Agreement(✓) Monetary Value(✓)]

Bonds --> [Tradable(✓) Legal Agreement(✓) Monetary Value(✓)]

Fixed Deposit (FD) --> [Tradable(☓) Legal Agreement(✓) Monetary Value(✓)]

As FDs are not Tradable they are not a type of Financial Instrument

Land Property --> [Tradable(☓) Legal Agreement(✓) Monetary Value(✓)]

You can not find the buyer for your property whenever you want so it is not tradable and does not fall into a type of Financial Instrument.

NOTE --> Financial assets (e.g. Land, Car) & Financial Instruments are different.