Instrument transformers can be simplified with basic magnetic circuits. Figure 2 depicts the most basic magnetic circuit of an ideal instrument transformer. As a current passes through the primary winding it induces a magnetic flux in the steel core. The flux flows through the core and induces a current on the secondary winding proportional to the ratio of turns on the primary to the secondary.
Instrument transformers are not a perfect device and incur losses from resistance and stray inductance of the copper winding and core. The two biggest losses are due to the copper windings that carry the current and the magnetic core that carries the flux. Figure 3 below shows the electric circuit and associated losses of an actual transformer. Figure 4 shows the equivalent circuit for a current transformer.