Security
Money is greatest asset a person may have and protective for it at all costs. Money in financial market is one of the top priorities of every rational person. This is where the concept of security comes up because it is basically a reassurance to one that his or her money and other assets are safe even in risky situations so that a person could continue spending it without fear
which is needed for all kind of developments.
Now may be you are thinking what is security?
Security basically can be considered as a tool, a fungible and negotiable one that offers a monetary value. This is essentially a certificate signifying ownership of a particular asset in a variety of forms. Its very nature makes it transactable like transferring its ownership from one person to another person.
If we derive Security in layman’s terms than it can be described in a simple sentence, a valuable financial asset with a monetary value allowing it to be traded, sold, or bought.
Types of Securities
Securities are of many types and depend from county to county, however, they can be boldly categorized into four major types:
Equity Securities
Such types of security are often used synonymously with stocks or shares which an individual holds. This type of security is a never-ending source of income for the bearer since the shareholders or the stockholders are paid regularly in form of dividends which can be cashed out at any time.
However, this security is unstable as well since the stock or share price is variable with it rising and falling as per the market conditions and the company’s fortunes, this also leads to the incomes rising and falling as well.
Debt Securities
This security is pretty comparable to the above-mentioned one, however, there is one major difference, this mechanism works on borrowed money rather than a proper income source. Just like money lending, the assets are lent from one party to another. The lending party then has debt security as it receives its asset as it is but also some additional profit in the form of interest, the rate of which is mutually decided by both the parties. So, the lending party keeps increasing its money as time goes on.
Hybrid Securities
If we go by the name, then hybrid securities are essentially a culmination of debt securities and equity securities. This is a rare occasion and there are a few examples of this such as:
Equity Warrants
- Convertible Bonds
- Preference Shares
- Derivatives
This security is an oddball since it isn’t really based directly on the main asset as the above ones, rather it puts its focus on the underlying assets, and their value is based on their purchase or repayment with all the factors at play like the interest, maturity, and price. There is a catch here though, the seller doesn’t exactly need to own the asset as long as he can offer the buyer enough cash to purchase the asset for himself.
Advantages of Securitization
Having security has major advantages in it, some of the advantageous securities are herewith:
- Retirement Money
- Insurance in an event of disability
- Life Insurance
- Insurance on Property
- Academic Savings
Securitization Disadvantages
Having security comes with its fair share of disadvantages as well, a major contributing factor to this, is risk. If we go over each type of security, we see that each poses a risk, and dealing with them requires a lot of knowledge and forward-thinking since falling into its harm is not that difficult.
If we take equity security, we can see that the market is a volatile space, with the monetary values falling and rising each second in trading session of Stock Market, so if a person were to buy stocks or shares in bulk for a large amount of money, there is a very real possibility that the market could crash the next day and their millions would be worth pennies in an instance and this is a problem which each buyer has to keep in mind and to have proper countermeasures in place of prior itself.
Coming to the second type of security is debt security, the person taking the debt could easily fall in a web called the debt trap where he is unable to pay it off and it keeps increasing day by day which makes it last generations and reaches a stupendous amount of money. Long story short, it is a risky business and not suitable for rookies or less experienced people.
What is security in finance?
security in finance refers to negotiable as well as fungible certificates which can be transferred from one to another.
How many types of securities are there?
There are four major types of securities which are:
- Equity Securities
- Debt Securities
- Hybrid Securities
- Derivatives
