What are the different types of securities?
Answers
There Are Three Types of Securities
1. Equity securities are shares of a corporation. You can buy stocks of a company through a broker. You can also purchase shares of a mutual fund that selects the stocks for you. The secondary market for equity derivatives is the stock market. It includes the New York Stock Exchange, the NASDAQ, and BATS.
An initial public offering is when companies sell stock for the first time. Investment banks, like Goldman Sachs or Morgan Stanley, sell these directly to qualified buyers. IPOs are an expensive investment option. These companies sell them in bulk quantities. Once they hit the stock market, their price typically goes up. But you can't cash in until a certain amount of time has passed. By then, the stock price might have fallen below the initial offering.
2. Debt securities are loans, called bonds, made to a company or a country.
You can buy bonds from a broker. You can also purchase mutual funds of selected bonds.
Rating companies evaluate how likely it is the bond will be repaid. These firms include Standard & poor's Moody's, and Fitch's. To ensure a successful bond sale, borrowers must pay higher interest rates if their rating is below AAA.
If the scores are very low, they are known as junk bonds. Despite their risk, investors buy junk bonds because they offer the highest interest rates.
cooperate bonds are loans to a company. If the bonds are to a country, they are known as sovereign debt. The U.S. government issues Treasury bonds. Because these are the safest bonds, Treasury yields are the benchmark for all other interest rates. In April 2011, when Standard & Poor's cut its outlook on the U.S. debt the Dow dropped 200 points. That's how significant Treasury bond rates are to the U.S. economy.
3. Derivative securities are based upon the value of underlying stocks, bonds or other assets. They allow traders to get a higher return than buying the asset itself.
Stock options allow you to trade in stocks without buying them upfront. For a small fee, you can purchase a call option to buy the stock at a specific date at a certain price. If the stock price goes up, you exercise your option and buy the stock at your lower negotiated price. You can either hold onto it or immediately resell it for the higher actual price.
A put option gives you the right to sell the stock at on a certain date at an agreed upon price. If the stock price is lower that day, you buy it and make a profit by selling it at the agreed upon, higher price.
If the stock price is higher, you don't exercise the option. It only cost you the fee for the option.
Futures contracts are derivatives based on commodities. The most common are oil, currencies, and agricultural products. Like options, you pay a small fee, called a margin. It gives you the right to buy or sell the commodities for an agreed upon price in the future. Futures are more dangerous than options because you must exercise them. You are entering into an actual contract that you have to fulfill.
Asset backed securities are derivatives whose values are based on the returns from bundles of underlying assets, usually bonds. The most well-known are mortgage backed securities which helped create the subprime mortgage crisis. Less familiar is asset backed commercial paper. It is a bundle of corporate loans backed by assets such as commercial real estate or autos.
Explanation:
hi friend here is your answer ________,
There Are Three Types of Securities
1. Equity securities are shares of a corporation. You can buy stocks of a company through a broker. You can also purchase shares of a mutual fund that selects the stocks for you. The secondary market for equity derivatives is the stock market. It includes the New York Stock Exchange, the NASDAQ, and BATS.
An initial public offering is when companies sell stock for the first time. Investment banks, like Goldman Sachs or Morgan Stanley, sell these directly to qualified buyers. IPOs are an expensive investment option. These companies sell them in bulk quantities. Once they hit the stock market, their price typically goes up. But you can't cash in until a certain amount of time has passed. By then, the stock price might have fallen below the initial offering.
2. Debt securities are loans, called bonds, made to a company or a country.
You can buy bonds from a broker. You can also purchase mutual funds of selected bonds.
Rating companies evaluate how likely it is the bond will be repaid. These firms include Standard & poor's Moody's, and Fitch's. To ensure a successful bond sale, borrowers must pay higher interest rates if their rating is below AAA.
If the scores are very low, they are known as junk bonds. Despite their risk, investors buy junk bonds because they offer the highest interest rates.
cooperate bonds are loans to a company. If the bonds are to a country, they are known as sovereign debt. The U.S. government issues Treasury bonds. Because these are the safest bonds, Treasury yields are the benchmark for all other interest rates. In April 2011, when Standard & Poor's cut its outlook on the U.S. debt the Dow dropped 200 points. That's how significant Treasury bond rates are to the U.S. economy.
3. Derivative securities are based upon the value of underlying stocks, bonds or other assets. They allow traders to get a higher return than buying the asset itself.
Stock options allow you to trade in stocks without buying them upfront. For a small fee, you can purchase a call option to buy the stock at a specific date at a certain price. If the stock price goes up, you exercise your option and buy the stock at your lower negotiated price. You can either hold onto it or immediately resell it for the higher actual price.
A put option gives you the right to sell the stock at on a certain date at an agreed upon price. If the stock price is lower that day, you buy it and make a profit by selling it at the agreed upon, higher price.
If the stock price is higher, you don't exercise the option. It only cost you the fee for the option.
Futures contracts are derivatives based on commodities. The most common are oil, currencies, and agricultural products. Like options, you pay a small fee, called a margin. It gives you the right to buy or sell the commodities for an agreed upon price in the future. Futures are more dangerous than options because you must exercise them. You are entering into an actual contract that you have to fulfill.
Asset backed securities are derivatives whose values are based on the returns from bundles of underlying assets, usually bonds. The most well-known are mortgage backed securities which helped create the subprime mortgage crisis. Less familiar is asset backed commercial paper. It is a bundle of corporate loans backed by assets such as commercial real estate or autos.