Understanding Securities Market

• Learning outcomes include understanding the definition of a Security Market, how securities are traded, and identifying minimal risk securities to invest in.

Securities Market

• A financial securities market is a marketplace for buying and selling various securities like stocks, bonds, and derivatives.

Financial Securities

• A financial security is a type of financial asset that holds value and can be traded.
• Governments or companies usually issue them to raise capital for operations and growth.
• Securities often trade on a secondary market between buyers and sellers.
• Laws and regulations protect investors and ensure fair trading practices.
• Financial securities are subject to market risk, meaning their value can change due to economic, political, and other factors.
• Investors may experience gains or losses, depending on the performance of the asset

Types of Securities

• Equity and debt are the two main types of securities.
• Equity securities represent ownership in a company.
• When an investor buys equity securities, they become a shareholder and may receive dividends or profit from capital gains.
• Debt securities represent a debt obligation, usually issued for a fixed period, where investors lend money to corporations or governments.
• In exchange, investors receive interest payments and the return of the principal amount at maturity.

How Securities are Traded

• Securities trade via stock exchanges, private placements, derivative exchanges, and over-the-counter (OTC) markets.
• Stock exchanges: Organized marketplaces where buyers and sellers meet to trade securities, such as stocks, bonds, and other financial instruments.
• Private placements are offerings exempt from registration with the Securities and Exchange Commission (SEC); usually offered to a limited number of investors or to a single investor.
• Derivative exchanges and trading platforms: Online marketplaces for trading derivatives like futures, options, and swaps.
• Over-the-counter (OTC) market: A decentralized dealer network that trades securities directly with one another, primarily for stocks not listed on a stock exchange.

Participants in the Securities Market

• Participants in the securities market include individuals or institutions involved in buying and selling, organized into primary and secondary market participants.
• Primary market participants issue securities and include investment banks, governments, and corporations.
• Investment banks act as intermediaries between issuers and investors, assessing underwriting risk.
• Governments and corporations can issue securities directly to the public.
• Secondary market participants trade already-issued securities and include retail investors, institutional investors, and broker-dealers.
• Retail investors can purchase securities through retail brokers or directly from the issuer.
• Institutional investors, such as mutual funds, hedge funds, or pension funds, purchase large amounts of securities.
• Broker-dealers act as both brokers and dealers, buying and selling securities for clients while trading for their accounts.

Securities Markets

• Financial markets where securities like stocks, bonds, and derivatives are bought and sold, enabling companies to raise capital and investors to trade.
• Primary markets are where companies and governments issue securities for the first time, using the proceeds to finance operations.
• Secondary markets are where investors trade securities, facilitating trading and providing liquidity.
• Securities markets are essential for the global financial system and efficient allocation of capital.