Asset class

A class is drawn around shared economics and shared plumbing: instruments that respond to the same forces and that reach a price through the same kind of market. A contract provider typically organises its catalogue into currency pairs, stock indices, commodities and metals, listed company shares, and exchange traded funds. The grouping is operational as much as economic, because instruments in one class can share a specification template, a price source and a set of trading hours.

What differs across a boundary is more consequential than what differs within one. Trading hours follow the venue underneath: a contract on a listed share can only be quoted while that exchange trades, while a currency pair is quoted almost continuously through the week. Contract size conventions are class specific, since a currency lot is a fixed number of units of one currency while a metal is quoted per ounce and an oil contract per barrel. Financing is calculated on different reference rates. A single lot therefore means an entirely different exposure in two different classes.

Classification is a convention rather than a natural fact, and the boundaries leak in ways worth knowing. Gold is filed as a commodity and behaves partly as a reserve asset. An exchange traded fund is a fund whose shares trade like a share. An index is a published calculation rather than an asset anybody can hold. Portfolio theory draws classes by how returns move together and arrives at different boundaries from the ones a trading platform uses to group its symbols, and both groupings are useful for what they were built for.