What Are Securities?
Securities are financial instruments that represent ownership or a debt obligation. They are used by individuals, companies, and governments to raise capital in public and private markets. Securities can be broadly classified into three categories:
Equity Securities: Represent ownership in a company, such as stocks. Shareholders may receive dividends and have voting rights in the company.
Debt Securities: Represent a loan made by an investor to a borrower, such as bonds, debentures, or treasury bills. The borrower agrees to repay the principal amount along with interest.
Derivative Securities: Financial contracts whose value is derived from an underlying asset, such as futures, options, or swaps.
Key Features of Securities
Tradable: Securities can be bought, sold, or traded in markets.
Value: They have a monetary value based on their current market price.
Ownership/Obligation: They may represent ownership in a company or an obligation to repay a debt.
What Is Trading of Securities?
Trading of securities refers to the buying and selling of these financial instruments in financial markets. The primary goal of securities trading is to facilitate liquidity, capital allocation, and investment opportunities.
There are two main markets where securities are traded:
Primary Market: Companies issue new securities (stocks or bonds) to raise capital. This process is often done through an Initial Public Offering (IPO) or private placements.
Secondary Market: Previously issued securities are bought and sold among investors. This is where most securities trading occurs, typically on exchanges.
What Is a Securities Trading Exchange?
A securities trading exchange is a regulated marketplace where securities like stocks, bonds, and other financial instruments are bought and sold. It provides a platform for transparent and organized trading by matching buyers and sellers.
Examples of securities exchanges include:
New York Stock Exchange (NYSE) - USA
NASDAQ - USA
London Stock Exchange (LSE) - UK
Tokyo Stock Exchange (TSE) - Japan
Bombay Stock Exchange (BSE) - India
Functions of a Securities Trading Exchange
Liquidity: Exchanges ensure that securities can be easily bought or sold.
Price Discovery: The exchange determines the market price based on supply and demand.
Transparency: Exchanges provide access to information about prices, trading volume, and market trends.
Regulation and Safety: Exchanges operate under strict regulations to protect investors and ensure fair practices.
Participants in Securities Trading
Investors: Individuals or institutions seeking to grow wealth by buying and holding securities.
Traders: Individuals or entities actively buying and selling securities for short-term profit.
Brokers: Licensed professionals who facilitate the buying and selling of securities on behalf of investors.
Regulators: Organizations like the Securities and Exchange Commission (SEC) ensure the market operates fairly and transparently.