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by Finage at April 12, 2023 6 MIN READ
Let's talk about assets, how you can trade them online, and their classifications. Assets can actually be divided into two main types: financial assets and tangible ones. Financial assets are what we call liquid assets which means their value is determined by ownership claims or contractual rights. So, these assets can be easily converted into stocks or other financial value as bonds. The interesting thing about these assets is that they don't have a physical form. They exist in a virtual sense.
On the other hand, we have tangible assets. These are the ones you can physically touch and feel like land or real estate properties. Unlike financial, tangible ones have a physical presence, they are actual. So it's important to understand these distinctions when it comes to managing and valuing different fundamental data with financial assets.
Because there is no physical form, the value of financial assets is determined by demand and supply. To simplify, the value comes from the agreement made about the asset by the buyer and seller. Another factor that plays a key role in value is the degree of risk the asset carries on a market. There are many types of financial assets. With many things being done online, it is no surprise that is the same for trading. Continue reading to find out which financial assets can be exchanged online.
- Main types
- Cash and equivalents
- Equity stakes
- Accounts receivable
- Final thoughts
So financial assets derive their value from contractual agreements. Although they lack a physical form, these assets are far from being imaginary, they are real. In fact, they hold significant importance in the financial realm.
Financial assets are often referred to as liquid because they possess the quality of being easily sold or converted into cash. However, it's worth noting that this liquidity also exposes them to the possibility of losing value over time. Now, let's explore the diverse range of financial assets. They come in various forms, such as:
- Cash and equivalents
- Equity stakes
- Accounts receivable
- Funds held in bank accounts
- Mutual funds
The simplest form of financial assets is cash and its equivalent. It is also the safest type as the value usually remains consistent over time. This includes checking and saving bank accounts. Checking accounts are the most used financial assets. This is the most liquid type. It is easy to change the asset into cash that can be used for emergencies. Owners have access to a monthly statement that shows the value of an account.
Other types are not as liquid as cash. Bank accounts have a limited return on investment (ROI). That means you get a profit from owning this asset. It is determined by the cost of being the owner of an asset. However, the profit is usually less than expected. Another disadvantage is that the banks usually restrict withdrawals over some time. The amount can also be limited.
This financial asset gives the owner a repayment once the investment matures. With bonds, the investor gets a profit from the interest. Bonds work similarly to loans from a bank. You will get a payment with the bond once it has reached maturity.
Of all these, the most popular financial assets that are traded online are stocks. One reason why stocks work well for the online Market is how easily they fluctuate. Today the stock market attracts many online traders. This has increased significantly over the past few years as the global online trading market is expected to reach 10.21 billion US dollars by the end of 2023.
Stocks are assets that don't have an expiration date. So it means you can keep trading them continuously. Anyone who buys a stock becomes part owner of a company. If there are any profits or losses, the owner shares the same. With stocks, you can either keep them or sell them to other traders. Another thing that makes stocks liquid is that you can easily sell or buy them from a market with a lot of traders. That means whenever you need cash, it is easy to exchange the stock as traders are always ready to buy it.
Owning some stocks makes you eligible for dividend payments. This is usually reserved for high-risk stocks. The higher the risks the better the payment.
These are the shares that a company owns after buying stakes from another business. These become part of the financial assets of a company. The new owner can now receive dividends from the original company. These are paid to the investing company.
The value of this asset is based on how much a company expects to receive over some time. These work over a short time. The customer signs a contract with a company. The contract is a guarantee that the customer will pay for the product at the agreed time.
Trading financial assets come with advantages and disadvantages when compared to physical ones. Some of the pros of financial assets include:
- It is easy to convert to cash
- Most assets easily increase in value
- The FDIC provides up to US $250,000 in safety for bank accounts
When trading financial assets keep in mind that there may be downsides. Disadvantages include:
- Highly liquid assets may lose value
- Assets that are not liquid are difficult to sell
- If the value of the entity drops the same applies to the asset
- Assets depend on market value
Unlike fast cash, for other financial assets like stocks and bonds, you still have to wait to receive the payment. This is the settlement date that the buyer and seller agreed on. The time varies but is usually two business days. Sometimes it may take longer, depending on the type of asset.
Let’s not forget about physical currency and funds held in bank accounts or other easily accessible and tradable instruments. Think of it as the money you can readily use for transactions and day-to-day expenses. As well as mutual funds that can work as investment vehicles that bring together money from multiple investors.
The funds are then used to create a diversified portfolio consisting of various assets such as stocks, bonds, and other investments. Each one plays a unique role in the world of finance and trading niches.
Cryptocurrency could be also considered an asset. When we talk about cryptocurrency, we're referring to digital currencies that exist purely in electronic form. So we can say that by using cryptography to ensure secure transactions, you are using assets. It operates on decentralized networks called blockchains, which act as public ledgers to record all the transactions.
By the way, you might have already heard of some top cryptocurrencies like Bitcoin, Ethereum or Litecoin. These are just a few examples out of a wide range of cryptocurrencies and its data available today. Also, you can access real-time and historical information about cryptocurrencies through WebSockets and APIs that will allow you to gather data from major crypto exchanges and get data to gain more assets.
Financial assets offer a lucrative investment. The fact that they are liquid makes them a must for anyone looking for investments. There are so many types including cash, bonds, stocks, and accounts receivable. Despite not being physical like real estate, financial assets are very valuable.
One thing that makes them profitable is how easy it is to buy and sell. The value can be compared to physical assets. It is easy to increase the value of these assets as this is determined by market demand. Supply and demand are not the only things that have an impact on value. The risk that comes with a financial asset also determines its value. To better prepare for trading assets and gain good profit, whether you're interested in stocks or cryptocurrencies, there's a wealth of information available to you. You can access different fundamental data with Finage that will help you with further predictions!
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