A securities. As an example, the regulatoryrole

A security is a financial instrument that holds some monetary value and can be traded. Generally, a securityis a stock, options or a bond. So, it can represent an ownership position in a publicly-traded corporationthrough stocks or options. It can also mean a creditor relationship with a governmental body or a corporationby holding bonds. A regulatory body oversees the transactions of securities. As an example, the regulatoryrole is played by Securities and Exchange Commission in the United States.In a broad sense, securities can be of following categories.• Equity Securities: An equity security represents ownership interest in an entity realized in the formof any kind of shares of capital stock. Generally this ownership allows the shareholders some controlover the company with voting rights.• Debt Securities: A Debt security is realized through some kind of bonds and imply a creditor relation-ship to the issuer entity. The issuer entity is the entity who is taking the loan and may be governmentbody, corporation etc. The debt security have well defined terms of the amount of borrowed money,interest rate and maturity time. After the specified fixed term, the debt securities can be redeemed bythe issuer. Some example of debt securities include government and corporate bonds, certificates ofdeposit (CDs) and collateralized securities. Debt securities are commonly issued for a fixed term withregular repayment of interest. The government issued bond (as example treasury bonds in U.S.A.) isthe most safest and so is considered as the baseline standard for determining the interest rates for otherbonds and loans. There are some firms who rates the bond issuers based on the risk of repayment andsome other factors. If the ranking is below AAA, the interest rate is generally high.• Derivative: Derivative securities includes options, futures etc. Options allow a party to buy the rightto buy or sell some stocks before certain expiry date at a certain predefined price for some fee. So, itdoesn’t require to actually buy or sell the stock with full payment, rather gains some rights which maybe exercised if seems profitable. There are call options and put options based on the acquired rightof buy or sell. Another most common derivative is futures a.k.a futures contract. Futures are future1contract to buy or sell some commodities or financial instrument at a future date at predefined pricewhich is purchased buy depositing some fraction of price to a margin account. Future is an obligationthat must be fulfilled whether options can be ignored by accepting loss of the fee paid. There are someother kinds of derivatives like asset-backed mortgages etc.


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