Stocks & Securities

Holding a financial security gives a right to the holder to receive future monetary benefits under a stated set of conditions. Except for derivatives, securities let you own the underlying asset without taking physical possession. The price of the securities indicates the value of an underlying asset. More the price, higher is the value of the asset.

There are multiple types of securities, but most fall under three categories: equity securities, debt securities and derivatives. Here’s a brief breakdown of each:

• Equity securities: These are typically shares in a corporation, commonly known as stocks. That means you’ll literally own a portion of that company.
• Debt securities: These are loans, or bonds, issued to the market by companies and governments. Because bonds are loans offered by reputable organizations, they are much safer than stocks.
• Derivatives: These can be based on stocks or bonds, but also include futures contracts. Those contracts, including commodities futures, allow investors to bet for or against the price of a particular asset. However, derivatives contain far more risk than either stocks or bonds and may be a poor choice for a new investor.