Today, the popularity of securities as an investment tool is constantly growing. Moreover, they are increasingly acquired by small investors who have a poor understanding of the economic nature of such a financial instrument and are not able to evaluate the investment quality of securities.
A security can be described as a type of financial liability that
confirms the owner’s right to profit or ownership of a part of the issuer's property.
Before acquiring debt assets of any enterprise, it is important to evaluate the investment quality of securities. The most important characteristics to be evaluated are:
- liquidity - the ability of financial instruments to quickly and without significant losses be converted through sales into cash;
- profitability is the possibility of capital gains in case of purchase and subsequent sale of a security;
- investment risk - the possibility of partial or complete loss of funds invested in any financial instrument;
- negotiability is the ability of paper to be sold and bought in the market.
All of these characteristics affect the present and future value of an asset.
We can say that the investment quality of securities depends on the type of financial instrument. The characteristics of the paper may be affected by: the issuer's financial well-being, reliability and security of investments, and
the ability to convert.
In general, the stock market is a set of relations interconnected with the issue and circulation of financial instruments. The classification of the securities market is determined by the practical value:
- according to the objectives of the functioning of the market, primary and secondary are distinguished. The first is a relationship about the initial placement of securities between investors, the second - the subsequent trading of already placed instruments;
- according to the degree of organization, organized and spontaneous markets are distinguished;
- depending on the type of stock values traded - stock markets, bonds and the like;
- by category of financial instruments - markets for basic and derivative securities.
Core securities are financial instruments that are based on property law. The most common of these are stocks and bonds.
The stock is a financial instrument that confirms the right
investor for a certain share of the joint-stock company's property, part of its profit, as well as the opportunity to participate in the management of the company. The share is equity paper, that is, the money received upon their issue belongs to the company and is not refundable.
A bond refers to debt securities, it certifies a loan agreement between its issuer and the holder.
Derivative financial instruments are based on price assets, which include: prices of goods or basic securities, credit or foreign exchange markets. Such assets certify the holder’s right or obligation to acquire or sell the underlying asset according to certain criteria (price, quantity and time). This group includes bills of exchange, options, bills of lading and many other instruments.
A bill of exchange is an unconditional obligation of the person issuing it to pay the holder a certain amount on time.
An option provides for a right, not an obligation, to acquire an asset at a fixed cost.
Bills of lading represent the unconditional obligation of the sea carrier to deliver the goods in accordance with the terms of the contract.
The variety of securities leads to the fact that the investor in the process of choosing investment instruments faces a wide choice. In order not to be mistaken, choosing a method of investment, it is necessary to carefully study the investment quality of securities.