Asset Class
There are different perspectives you can take when classifying asset classes.
It would be perfectly valid for instance to say that the main asset classes are
stocks, bonds, currencies and commodities. For most market participants,
that way of looking at asset classes makes the most sense.
But
for systematic, quantitative traders, another
definition may be more
practical. When looking at the various markets we have available to us, we
can group them in different ways. One way to group asset classes would be
to look at the type of instruments used to trade them. The type of instrument
is, for a systematic trader, often more important than the properties of the
underlying market.
This becomes particularly clear with futures, as we will soon see, where
you can trade just about anything in a uniform manner.
Futures behave quite
differently than stocks, from
a mechanical point of view, and that’s
important when building trading models.
The currency space is an interesting demonstration of this concept. You can
trade spot currencies, or you can trade currency futures. It’s really the same
underlying asset, but the mechanics of the two types of instruments is very
different and would need to be modeled in different ways.
