Posted in Finance, Accounting and Economics Terms, Total Reads: 640
Security is an asset which is tradable and represents an investment in stocks or bonds or any other financial investment. It is a certificate, either on paper or digital, that shows one's ownership of shares in a public-traded company. It is also the property which serves as a collateral for a debt. If the debt is not repaid back as per the terms of the deal, then the creditor may seize the property and use it in his own terms. Securities can be of the form of notes, stocks, preferred shares, bonds, certificates of interest, debentures, futures, swaps, warrants, options etc.
Securities provide a way of raising the capital for any new investments to be taken by a company. This is done by selling the securities for capital to the investors who later claim for the return on the investments.
Securities are of three types:
1) Equity securities: This allows a person to own the shares of a company.
2) Debt Securities: These are the provisions of loans to a company by a lender which includes repayment of the investment including interests by the company back to the lender.
3) Derivative Securities: these methods allow a person to exercise his stock options of call or put on the stocks of a company, thereby, allowing the person to get higher returns with little risk.
Securities are useful in connecting the lender to the borrower thereby, making the market more efficient. But on the other hand, securities also can create huge losses to the investors in case of non-diversified portfolio.