Securities

Securities are tradable financial assets that represent claims on value, either through ownership or through the right to future cash flows. They include equity instruments such as common and preferred stock, debt instruments such as bonds and notes, and a broad range of derivatives and hybrid instruments including options, futures, swaps, and convertible securities. Securities can be issued by corporations, governments, or other entities and are bought and sold on organized exchanges or over-the-counter markets.

In the primary market, new securities are issued to raise capital, often with the involvement of underwriters. In the secondary market, existing securities are traded among investors after issuance, providing liquidity and price discovery. Prices are influenced by expected cash flows, credit risk, interest rates, and supply and demand dynamics.

Regulation of securities aims to ensure fair dealing, transparency, and investor protection. In many jurisdictions, securities markets are overseen by government regulators. Issuers and investment firms must disclose material information, follow financial reporting standards, and prevent fraud and insider trading.

Investors include individuals, pension funds, mutual funds, banks, and hedge funds. Risks associated with securities include market risk, credit risk, liquidity risk, and regulatory or systemic risk. Diversification and prudent risk management are common strategies used by investors.

Securitization is a process in which pools of financial assets are transformed into tradable securities backed by the underlying cash flows, such as mortgage-backed securities or asset-backed securities.

Overall, securities facilitate capital formation by enabling issuers to raise funds while offering investors avenues for ownership, income, and risk management through trading and diversification.