A Quick Overview of 3 Types of Securities


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Quick Overview of 3 Types of Securities The humanitarian meeting came out with different forms of financial dealings, starting with barter and reaching securities, where barter was the first means of exchange for the purpose of fulfilling needs, and with the expansion of transactions, money appeared as an intermediary that has substantial advantages over the barter system. Money continued to play its role in commercial operations until some difficulties appeared so money have become unable to carry out exchanges on its own, and there had to be other means that help in fulfilling the commercial and financial operations of individuals. The developments have continued gradually until we got to new financial instruments, which are securities.

Despite the widespread of use of these securities, many people still cannot distinguish between them. In this article, we will overview at different types of commonly used financial instruments.

Definition of Financial Securities

Securities are negotiable instruments that involve a form of value, representing part of the ownership of a commercial company “shares”, or a debt relationship, i.e. the relationship between a creditor and a debtor, between the security holder and the issuing organization, whether it is a government or private organization.

From the above it appears that securities can be classified according to what they are to:

  1. Securities represent part of the ownership, such as stocks and the Sukuk
  2. Securities representing a debt relationship, such as bonds
Also Read: the Commercial Papers: What You Need to Know about it

Types of securities

First: Stocks​

Shtocks are considered the most famous type of securities, they are certificates that are equal in value, tradable in commercial ways, representing the right of the shareholder in the company that he shares in his capital and gives its owner the authority to practice his rights in the company.

Shares Properties

  1. The shares represent ownership in the capital of the company, and this results in its entitlement to profits if they are realized, and it carries losses if they are realized, and it also gives him the powers to participate in the company’s management through the shareholders’ general assembly.
  2. Equal value: the company’s capital is divided by the number of shares, the value of all shares is equal, meaning equal rights as long as they are of one type.
  3. The indivisibility of the share: that is, the shareholders do not multiply in front of the company. If the ownership of the share is transferred to partners as a result of the heritage, will or giving, their ownership of the share is correct, but they must choose one person representing them in front of the company.
  4. Shares are negotiable, as their ownership can be transferred either by physical delivery if the share is to its holder, or by assigning it to someone else that is recorded in a record in the shareholders register.
  5. The issuance of shares is an important job in establishing companies, because it helps individuals participate in the formation of corporate capital, and helps companies in the stage of establishment or expansion by increasing capital when needed.

Reasons for issuing shares

  1. Increase the financial liquidity of companies to face financial crises.
  2. Funding new projects.
  3. Developing existing projects by increasing the company’s capital.

Second: Bonds​

Bonds represent a borrowing process by companies or entities through the issuance of negotiable instruments, the owner of which deserves an agreed fixed interest in addition to its nominal value at the end of the loan term, companies are allowed to issue them on terms.