Financial Instruments and Financial Products: Rights Versus Services
Summary
The document distinguishes a financial instrument from a financial product in its stricter usage. A financial instrument, such as a share, bond, or option, represents legal rights held by its owner; ownership and those rights can be transferred through appropriate mechanisms. A financial product, by contrast, is described as a financial service offered by a firm to a client, with examples including bank accounts, insurance contracts, and brokerage accounts.
The answer notes that everyday and commercial language often uses “product” loosely for instruments, so the terms may appear interchangeable in general descriptions. It recommends the more precise term “financial instrument” when discussing transferable claims such as shares and bonds. A second answer gives a less consistent distinction, reinforcing that usage varies. The discussion is terminological rather than a guide to instrument valuation or trading, and its definitions should be understood as a formal distinction rather than a guarantee of uniform usage in every context.
Key ideas
- A financial instrument gives its owner legal rights, such as shareholder or bondholder rights.
- Ownership of instruments such as shares, bonds, and options can be transferred.
- A financial product in the stricter sense is a service a financial firm provides to a client.
- Bank accounts, insurance contracts, and brokerage accounts are given as examples of services.
- In everyday usage, “financial product” may be used loosely to refer to an instrument.
Tags
Full text
# Financial Instrument vs Financial Product # Financial Instrument vs Financial Product From this link: where explained the relationship between asset-classes and financial-instrument types That's good, but here -Types of financial products: shares, bonds So is Financial Instrument = Financial Product ? ## Answer by Alex C (score 1, accepted) https://quant.stackexchange.com/a/31216 Strictly speaking bonds and shares are Financial Instruments. To describe them as Financial Products (as done in the web site you quoted) seems careless or sloppy use of language, but perhaps OK in everyday life. In a job interview (or to impress my boss) I would use "Financial Instrument". But don't waste time on this, it is a minor issue. What is the distinction? The proper definition of Financial Product is that it is (believe it or not) just another name for a Financial Service, a service which a financial firm delivers to a Client. [Marketing personnel are fond of using the word "product" in this general sense]. Examples are: a bank account, an insurance contract, a brokerage account. A Financial Instrument on the other hand gives the owner specific legal rights recognized by law (the rights of a shareholder, of a bondholder) and these rights are transferred when the ownership changes. Stocks, bonds, options can be transferred from one person to another through appropriate mechanisms. OTOH you don't sell your bank account when you move and no longer need it, you close it, and maybe open another account with another bank (with different terms and conditions) in another city. It is a direct relationship between you and the bank, not an impersonal legal right that can be transferred. ## Answer by Japet (score 0) https://quant.stackexchange.com/a/29875 The instrument has a direct correlation with market information (Option, Future, CFD ...), whereas product is generally an account, Bonds, Shares and loan.
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.