Held-For-Trading Security
Candlefocus EditorHeld-for-trading securities can be contrasted with other types of investments that are classified according to their security type (equity or debt) and types of holding. For example, ‘Held-To-Maturity’ is when a company has purchased an investment debt instrument with the intention of holding it until maturity and hence collecting all of the principal from that debt instrument. ‘Available-for-Sale’ relates to investments held for the long-term, with the expectation that their market value may change, however no attempt is made to actively speculate on these securities for short-term gains.
The right type of classification of a security investment is a very important decision to a trading firm. Companies must assess their risk tolerances, as well as their strategic investment goals, when deciding how to classify investments as held-for-trading, held-to-maturity, or available-for-sale. The right classification enables a firm to take advantage of the fullest extent of the specific benefits that accompany each classification, whilst conforming to the applicable accounting standards and carefully managing their risk tolerance levels.
In conclusion, held-for-trading securities are short-term investments made with the intention of generating a return on their market value. Trading firms must accurately classify their debt and equity investments according to the accounting standards and their particular risk management strategies in order to capitalize on the strategic benefits that accompany held-for-trading securities.