Trading For Dummies: Securities

This entry is part 1 of 3 in the series Trading For Dummies

Ever picked up the newspaper and read sentences like ‘Surging tech stocks’ or ‘bond market liquidity seen as more fragile’, and wondered what the heck it all means? Well, wonder no more, because this article and the following upcoming chapters will lead you to financial literacy, starting with securities.

1. What are securities?

These are items bought and sold on the financial markets. To be a security, it must be:securities

2. Why do people buy and sell securities?

To Raise Capital♦ To Raise Capital
For business to commence or continue, they need money. Or in other words, capital. They receive this by selling their company in parts or borrowing from other organisations. This process takes place by buying and selling of securities.

 

To Make Profits♦ To Make Profits
Traders and Investors make a profit by taking advantage of the fluctuation in prices of securities. Buy when the price is low and sell when it is high.

 

3. What are the types of securities on the Capital Market?

Stock♦ Stock
Stock allows the holder to share in the profits of the company. There are two types – common and preferred. The difference is that preferred stocks provide a fixed rate of profit, known as dividend and are paid relatively earlier.

 

Bonds♦ Bonds
It’s a security that initiates lending. They are a form of borrowing for which the lender receives a fixed interest. It works like a bank loan.

 

So that’s the basics of securities! Further on this and much more in the next chapters! Stay Tuned.

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