Types of Securities
1. Stocks (Equity Securities): Stocks represent ownership in a company and provide shareholders with voting rights and a share in the company’s profits through dividends. The value of stocks fluctuates based on the company’s performance and market conditions.
2. Bonds (Debt Securities): Bonds are debt instruments where investors lend money to a company or government in exchange for periodic interest payments and the return of the principal amount at maturity. They are considered relatively safer investments compared to stocks.
3. Derivatives: Derivatives are financial instruments whose value is derived from an underlying asset, index, or rate. Common types include options and futures. Derivatives are used for hedging risks, speculation, and leveraging investment positions.
4. Hybrid Instruments: Hybrid securities combine features of both equity and debt. Convertible bonds, for example, allow bondholders to convert their debt into company stock, offering a blend of fixed-income and potential equity participation.
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