Types of Securities

Any financial asset that is trade able is categorized as a security.

 

Securities have a variety of classifications depending on the structure that they follow in the categories.

 

They may be classified in terms of the time that the securities have been traded.

 

In this case, they are categorized as primary markets or secondary markets.

 

The primary markets represent the new securities that companies and corporations introduce to raise capital for a particular cause.

 

The secondary markets are the securities that are traded in the market for a period of time.

 

There are methods that can be used to classify securities. They may be classified in terms of ownership rights, maturity terms, credit rating, market capitalization, ownership rights and income payments.

 

The classifications differentiate securities as a particular type which may fall in other categories too.

 

The most universal and general classification of securities is as follows:

 

Stocks

Stocks are financial instruments that represent ownership in a company.

The stocks are traded as fractions of the company’s ownership. In this case, any party that has stocks in a business or a company has ownership right to the company.

Consequentially, a stock holder has the right to participate in decision making for the company.

The company therefore, holds annual general meetings where the management and the shareholders meet and discuss the progress of the company.

The shareholders are allowed to vote in the board of directors that they choose. The management also shares the financial reports with the shareholders as they are regarded as the owners of the company.

The shareholders have a right to a fraction of the net profits that the company earns.

 

The profits are shared according to the amount of stock that the investor owns. The shareholder earns the income as dividends.

 

The rest of the profits are invested back in the company to improve production and profitability of the company.

 

The company addresses the shareholders on the plans on expansion and how the profits that are invested in the company will be profitable

 

In case the company runs bankrupt, the shareholders are entitled to part of the income that is earned from liquefying the company’s assets.

 

Stocks of a company are introduced into the market through Initial Public Offers. The IPOs offer the company stocks to the public at a certain price. The public then gains partial ownership of the company.

 

Bonds

 

Bonds are the contractual agreements that a company and an investor get into. The company sells bonds to investors as a means of raising funds for expansion.

 

Bonds are the alternative that business opts for when they do not want to hold themselves in loans with banks.

 

The bonds are used by the company to raise funds for their plans of operation while they pay the amount at a certain interest rate for a particular period of time.

 

Bonds are characterized by the time it takes to mature, the interest rates and the premium value. Investment in bonds has an advantage over stocks n that in case of bankruptcy, the investors in bonds are the ones that are paid first.

 

Securities also can be classified into debt securities, equity securities and derivatives. Depending on the financial implications of the financial trades, the securities can be classified as debts, equities or derivatives.

 

The classification in this case is done with regard to the influence that the security has on the company’s assets and liabilities.

 

The debt securities include bonds, debentures and deposits among other securities that are a liability to the company.

 

They are offered by the company to investors in order to raise funds for expansion and other business ventures that a corporation wishes to indulge into. Equities are securities that a company trades as a partnership or capital stock for the company.

 

The shareholders of the stocks make up part of the corporation’s ownership.

 

 

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