Financial Securities Definition and Types

Definition and Types

• A security is a financial instrument that represents an ownership position or a claim on ownership in a publicly traded company
• Types of securities:
  • Equity securities: represent ownership in a company, e.g. stocks, shares
  • Debt securities: represent a loan from the investor to the issuer, e.g. bonds, debentures
  • Hybrid securities: combine characteristics of equity and debt securities, e.g. convertible bonds, warrants

Characteristics

• Securities are typically traded on a secondary market, e.g. stock exchange
• They have a specific value, which can fluctuate over time
• Securities can be bought, sold, or traded
• They provide a way for companies to raise capital from investors

Key Features

• Liquidity: the ability to easily buy or sell a security
• Risk: the possibility of loss or gain in value
• Return: the profit or loss generated by a security
• Term: the length of time until a security matures or expires

Regulation

• Securities are regulated by government agencies, e.g. Securities and Exchange Commission (SEC) in the US
• Regulations aim to protect investors, maintain fair markets, and prevent fraudulent activities

Investment Considerations

• Diversification: spreading investments across different securities to minimize risk
• Risk tolerance: an investor's ability to withstand potential losses
• Time horizon: the length of time an investor can hold a security before needing to sell
• Return expectations: the anticipated profit or loss from a security

Definition and Types of Securities

• A security is a financial instrument that represents ownership or a claim on ownership in a publicly traded company
• Equity securities represent ownership in a company, e.g. stocks and shares
• Debt securities represent a loan from the investor to the issuer, e.g. bonds and debentures
• Hybrid securities combine characteristics of equity and debt securities, e.g. convertible bonds and warrants

Characteristics of Securities

• Securities are typically traded on a secondary market, such as a stock exchange
• They have a specific value, which can fluctuate over time
• Securities can be bought, sold, or traded
• They provide a way for companies to raise capital from investors

Key Features of Securities

• Liquidity refers to the ability to easily buy or sell a security
• Risk refers to the possibility of loss or gain in value
• Return refers to the profit or loss generated by a security
• Term refers to the length of time until a security matures or expires

Regulation of Securities

• Securities are regulated by government agencies, such as the Securities and Exchange Commission (SEC) in the US
• Regulations aim to protect investors, maintain fair markets, and prevent fraudulent activities

Investment Considerations

• Diversification involves spreading investments across different securities to minimize risk
• Risk tolerance refers to an investor's ability to withstand potential losses
• Time horizon refers to the length of time an investor can hold a security before needing to sell
• Return expectations refer to the anticipated profit or loss from a security