What Are Securities?

An in-depth look at securities and how they can affect your financial future

When looking at your financial future, it is smart to invest in some securities. Securities can be broadly categorized into the following: debt securities, equity securities and derivative securities. Debt securities would include bonds, debentures and banknotes. An example of an equity security would be a common stock. And derivative securities, which derive value from an underlying entity, would include futures, options and forwards.

Securities are typically issued to help finance the operations of an organization. The issuer could be a government agency, a private corporation or an investment trust. There are two types of certificates when it comes to securities: bearer and registered. A certificate that is bearer means that whoever has possession of the security inherits the rights associated with it. A registered certificate means that the holder only receives the rights of the certificate if his or her name is on the security register of the issuer.

Organizations have found that securities are an attractive alternative to taking out bank loans, while those purchasing securities have found this as an investment, providing them with ways to receive income or some other capital gain. Throughout the last ten years or so, however, we have seen a rise of securities in regards to collateral.

As mentioned earlier, there are a few different types of securities. Debt securities are classified based on their maturity and unique characteristics. The holder of such a security is typically responsible for the payment of principle and interest, gaining some form of information and/or capital as a result. These securities are typically issued for a fixed term.

Equities are in regards to the capital stock of a company, partnership or trust, providing the holder with a share of equity interest. When holding an equity, the holder is considered a shareholder within that organization – owning a fraction of the issuer. While holding an equity, the holder is not required to make any sort of payments throughout the holding period. Equity also (typically) provides the holder with some control over the company, allowing a majority owner to significantly affect the direction of the issuer.

There are also some hybrid securities that combine the characteristics of both debt and equity securities. These hybrids include preference shares, convertibles and equity warrants.

When it comes to securities, there are two markets: the primary market and the secondary market. In the primary market, the investor’s money is directly going to the issuer of the security; the secondary market involves the selling or trading of securities between investors – taking the issuer out of the process. The initial process of releasing shares to the public is referred to as the initial public offering (IPO). During this process, issuers are typically advised by an investment bank to assist them.

Securities are one way of investing in your future. For more tips on how you can invest your money, check out Mark Tuminello’s other websites.