How to open an FBS account?
Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading.
How to withdraw the money you earned with FBS?
The procedure is very straightforward. Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.
How to start trading?
If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.
How to activate Level Up Bonus?
Open Level Up Bonus account in web or mobile version of FBS Personal Area and get up to $140 free to your account.
In financial circles, the world is driven by assets. The goal is to accumulate the most valuable assets to create and maintain long-term wealth. To understand the key principle of wealth creation, traders should know everything about underlying assets and their role in portfolio management.
What is an underlying asset?
The underlying asset is the basic security or investment vehicle on which derivatives operate. Underlying assets can be individual securities, like stocks or bonds, or groups of securities, like in an index fund.
A derivative is a financial contract between two or more parties based on the current or future value of the underlying asset. If we consider widely used markets, derivatives can take many forms, such as futures, stock options, swaps, and warrants. These are high-risk, high-reward instruments. Investors use them to bet on the future value of the underlying asset. Another purpose of derivatives is to hedge against other investments, seeking to reduce investment risk. Finally, derivatives are also speculative instruments, which can increase investment risk.
This is where the underlying assets come into play. To make the best bets on derivatives, investors tend to either hedge risk or increase it by speculative activities in high-risk areas such as options and futures. The underlying assets that enable these bets are critical to the process of investing in derivatives.
Types of Underlying Assets
1. Financial claims or stocks
A stock is a financial claim that represents the investor's or holder's proportionate ownership of the income and total assets of the issuing company. Stocks are primarily issued to raise finance to fund business operations or high-growth projects. Stocks can be ordinary or preferred.
2. Debt securities or bonds
A bond is a financial instrument that gives the holder fixed interest payments. Corporations and government institutions issue bonds to raise funds to fund business or government projects. Holders of such instruments are called debt creditors.
3. Exchange Traded Funds
Exchange-traded funds are special types of mutual funds benchmarked by an underlying index. In fact, this is a group of securities combined into one unit.
4. Market Index
A market index is a collection of securities, which focuses on one specific area of the financial market. Indices evaluate the effectiveness of financial markets, and they help develop passive investment strategies.
A currency is an instrument of money exchange that replaced the traditional barter system. Different countries may have different currencies. The most common and popular currency accepted worldwide is the US dollar.
A commodity is an instrument that is used in business and commercial activities. These items represent inputs to general trade and manufacturing business activities. Gold and silver are the most popular commodities traded on the commodity market.
Example of Underlying assets
One of the most famous and widely traded financial derivatives is stock options. Stock options are derivatives whose value is based on the underlying asset, namely the actual stock. For example, a call option on a share gives the buyer the right to buy the share at a specified price (strike price) until the option expires.
Obviously, the value and price of the option depend on the real stock price. For stocks trading at $60 per share, a call option on a share with an exercise price of $50 would be worth a minimum of $10 per share because the call option gives the option holder the right to buy a $60 share for only $50.
Stocks, bonds, commodities, such as gold, oil or cotton, interest rates, market indices, and currencies are the underlying assets that have influenced the creation of many financial derivatives. In addition to options, the most popular derivatives include forward contracts, credit default swaps (CDS), and collateralized debt obligations (CDOs).
Derivative financial instruments are commonly used to manage risk in investing. For example, an investor who owns multiple shares of a given stock can hedge their investment in the underlying asset—the stock—using derivative stock options.
The concept of underlying assets is important for investment speculators who may seek profit from arbitrage trading in underlying assets and derivatives, i.e. trades designed to profit from temporary market differences between the price of the underlying asset and the price of the derivative, based on this asset.
2022-04-20 • Updated