What is Securities in banking?
Securities in banking is a document of a certain monetary value. It generally refers to bonds and stocks which are negotiable. It is commonly used to mean any form of financial instrument. However, some legal definitions varies by legal and regulatory jurisdiction.
In some countries security is commonly used in day-to-day variance to mean any form of financial instrument.
There are primarily Three Types of securities-
1. equity securities
2. debt securities
3. derivative securities
Equity securities basically means that a stock and share of ownership in a company. These securities generally generate regular earning for the share holder that too in the form of dividend.
However, the equity security does Rise and fall in value which totally depends on the company’s Fortune and the days financial market.
Debt securities are different from equity securities. Equity securities involves stocks whereas, debt securities involve bonds, and banknotes. Debt securities involves borrowed money and the selling of a security. Debt securities are issued by a government or an individual or company with the promise of the repayment with interest. Another thing that differ equity securities to debt securities are that – debt securities include a fixed amount, rate of interest, and a date when the total amount must be paid by. Bank notes, bonds, and treasury notes are some examples of debt securities.
Derivatives is basically a contract signed between two parties which derives its price or value from an underlying asset. Generally, currency, stocks, bonds, interest rates, and commodities form the underlying asset. The most common types of derivatives are future, swaps, forwards, and options.
– Only margin money required
– tool for Risk Management
– position short selling possible without delivery
Derivatives are often used by individuals and Institutions to mitigate risk, but they can also be used effectively by investors to make money.
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