CandleFocus

Security

Candlefocus Editor
Security is the general term used to describe a wide variety of financial instruments used to raise capital in public and private markets. It covers anything that is tradable and which has monetary value, such as stocks, bonds, derivatives and other tradable instruments. It is important to note however, that different countries have different definitions of security.

Equity securities are the most commonly used type of security. They provide their holders with an ownership stake in a company and are used to raise capital by allowing a company to sell shares in itself. Equity is divided into common and preferred stock and has a number of benefits: it dilutes the power of its owners, offers liquidity to the holders, allows a company to tap new markets, lowers the cost of capital and allows investors to spread their risk.

Debt securities are essentially borrowed funds that are repaid with periodic payments. They are typically sold as bonds or notes and usually carry a fixed-interest rate. These types of securities come with slightly different benefits than equity securities. For example, debt does not dilute ownership, provides consistent payments and allows the issuer to focus on the fundamentals of their operations instead of managing investors.

Hybrid securities are a combination of equity and debt, usually containing elements of both. Popular hybrids include convertible bonds, which convert to equity at a preset price, and preferred shares, which are like stocks but with some of the features of bonds. These types of securities are often used when a company needs to raise capital but wants to avoid diluting ownership.

Securities are subject to laws and regulations that govern their issuance, trading and disclosure. In the United States, the Securities and Exchange Commission (SEC) is the primary regulator of public securities. In addition, self-regulatory organizations such as the National Association of Security Dealers (NASD) and the Financial Industry Regulatory Authority (FINRA) are also important in regulating various aspects of the securities industry.

Security investment is often viewed as a way to diversify a portfolio and minimize risk. Investors can choose from a vast array of securities available, to purchase depending on their individual needs and risk tolerance. With the right plan and a thoughtful approach, securities can lead to a sound retirement or financial goals, or contribute to a larger investment strategy.

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