Securities as an Instrument to Trade and Invest
A security is a type of financial instrument that can be traded for cash. The three main categories of assets are derivative contracts, equity, and debt securities. They are issued and traded by businesses, corporations, government agencies, and municipal authorities. The majority of investment vehicles are negotiable.
Types of Assets
Companies and individuals invest in different types of debt securities, including debentures, bonds, and banknotes. A debenture is a debt instrument that is not backed by collateral or some valuable asset. The reputation or creditworthiness of the issuing entity serves as a guarantee of payment. National authorities and businesses often issue debentures to raise working capital. There are various types of debentures such as government-issued T-bills and T-bonds, which are considered safe investments. Bonds come in different varieties, including inflation-indexed treasuries, zero coupon bonds, municipal and corporate bonds, and others. Yields can be tax-free or taxable. Corporate bonds are issued by businesses and offer higher yields.
The major types of equity securities include depository receipts, preference shares, and common shares. Preferred stock is irredeemable in most cases, which is also a characteristic of common stock. Common stockholders are paid only after holders of preferred shares. Moreover, there are different types of preferred or preference shares, including convertible, redeemable, participating, and cumulative. Convertible stock can be exchanged at a specified conversion price. Redemption occurs when a business buys shares back at a specified or at par price. Preferred shares may be cumulative meaning that unpaid dividends are paid out to stockholders in a subsequent accounting period. With cumulative shares, dividends and interest are also paid in subsequent periods. Common stockholders are paid only after preferred stockholders receive all outstanding interest.
Other Types of Derivative Contracts
Investors can choose from different types of derivatives such as swaps, futures, and forwards. A swap is a contract that allows one security to be exchanged for another. There are benefits to this arrangement, and one is building a better investment portfolio. Swaps also take place to change the quality of an issue or the term or maturity. Other types include interest rate and currency swaps. A futures contract is a formal agreement to trade financial instruments and commodities. A forward is also a type of contract used for financial transactions. The delivery of goods and services is deferred until a specified future date. There is a difference between spot and forward contracts in that assets are traded today under a spot agreement.
Types of Derivatives to Include in Your Investment Portfolio
Derivatives come in many varieties, and their value is derived from an underlying asset such as an interest rate, index, or asset. Examples of underlying assets include market indexes, currencies, commodities, bonds, and stocks. Types of Contracts There are different financial instruments such as:...
Yield on Debt Securities and Other Investment Instruments
Yield refers to the amount of money that owners receive in exchange for investing in some security. It is a set rate of return on insurance policies, fixed income securities, and stocks and bonds. Investment Products that Offer ReturnIndividuals and companies invest in different products, including...
Bond Funds as a Way to Invest in High-Grade Securities
Bonds funds invest in debt securities such as convertible, municipal, corporate, and government bonds. They also buy mortgage backed securities and other investment solutions. The main benefit for investors is that they are paid higher dividends compared to money market instruments and certificates...
Stock Market Investing and Ways to Invest in Securities
The stock market has outperformed gold, real estate, bonds, and other investment vehicles. It is a market for trading securities such as derivatives and stock. Derivatives include credit, commodity, interest rate, and foreign exchange derivatives. They are traded through the over-the-counter...