Holicent
VIP Contributor
Real and financial assets markets share many characteristics with each other. They both are highly liquid, where traders can quickly buy and sell large amounts of assets. They both have price discovery mechanisms that allow investors to efficiently value the underlying assets. They both have financial structure that includes debt/equity, derivatives and other instruments as well as collateral values that can be taken into account when valuing an asset.
One key difference between the two markets is that real assets have traditionally been more illiquid than financial assets, which makes them difficult to value at a glance. The illiquidity of real assets, however, has been changing over time in response to technological innovation and economic development.
The most important impact of this change on real asset prices has been through the use of derivatives such as futures contracts, options and swaps. These contracts enable investors to bet on future price movements without having to know the precise price at which they will trade; they also enable them to hedge their positions by making payments based on future prices rather than current ones.
One key difference between the two markets is that real assets have traditionally been more illiquid than financial assets, which makes them difficult to value at a glance. The illiquidity of real assets, however, has been changing over time in response to technological innovation and economic development.
The most important impact of this change on real asset prices has been through the use of derivatives such as futures contracts, options and swaps. These contracts enable investors to bet on future price movements without having to know the precise price at which they will trade; they also enable them to hedge their positions by making payments based on future prices rather than current ones.