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generalnotes:securities_and_trading

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generalnotes:securities_and_trading [2013/05/30 15:08]
andy created
generalnotes:securities_and_trading [2013/05/30 16:17] (current)
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 Some examples of types of bond: Some examples of types of bond:
  
-^ Corporate bonds | The debt of commercial entities, either as long-term (~10 years) **debentures** or shorter-term **commercial paper**((Essentially a post-dated cheque with a maturity of no more than 270 days.). |+^ Corporate bonds | The debt of commercial entities, either as long-term (~10 years) **debentures** or shorter-term **commercial paper**((Essentially a post-dated cheque with a maturity of no more than 270 days.)). |
 ^ Government bonds | Long-term bonds issued by governments to fund public spending. Typically long-term and low-interest,​ historically considered low risk. | ^ Government bonds | Long-term bonds issued by governments to fund public spending. Typically long-term and low-interest,​ historically considered low risk. |
 ^ Municipal bonds | Similar to government bonds, but issued by a smaller government unit, such as a city council. | ^ Municipal bonds | Similar to government bonds, but issued by a smaller government unit, such as a city council. |
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 ^ Convertibles | Bonds that can be converted at a later point to common stock, whenever the holder feels the price is optimal. If it is a **callable bond** then the holder has a fixed period in which to convert, after which the issuer can pay back a fixed amount (typically higher than the principle) to cancel the bond instead of issuing the holder with stock. | ^ Convertibles | Bonds that can be converted at a later point to common stock, whenever the holder feels the price is optimal. If it is a **callable bond** then the holder has a fixed period in which to convert, after which the issuer can pay back a fixed amount (typically higher than the principle) to cancel the bond instead of issuing the holder with stock. |
 ^ Warrants | Similar in principle to options, gives the holder the right to purchase a specified number of shares at a specified price within a defined period. | ^ Warrants | Similar in principle to options, gives the holder the right to purchase a specified number of shares at a specified price within a defined period. |
 +
 +==== Derivatives ====
 +
 +There are two types of derivative security:
 +
 +^ Over The Counter (OTC) | Privately traded without using an exchange. |
 +^ Exchange Traded (ETD) | Traded through a specialised **derivatives exchange** or a standard exchange. |
 +
 +In general, they are used for a variety of purposes:
 +
 +^ Hedging | Mitigate the risk in another transaction by taking out a derivative in the opposite direction. |
 +^ Options | Where the value of the derivative is linked to the underlying asset reaching a specific price, or other event. |
 +^ Non-tradable Assets | Assign notional value to assets which can't otherwise be traded (e.g. weather derivatives). |
 +^ Leverage | Amplify the effect of changes in the price of the underlying asset. For example, using capital as margin on which to borrow a larger sum to trade in higher volumes. |
 +^ Speculation | Make profits based on the specified asset price behaving in an anticipated fashion. |
  
generalnotes/securities_and_trading.1369926502.txt.gz ยท Last modified: 2013/05/30 15:08 by andy