Securities and how they work

Securities and how they work

Securities and how they work

Securities are an important part of the financial system and play a crucial role for companies, investors and the economy in general. In this article we will take a closer look at the topic of securities, their functions, types and how they work.

What are securities?

Securities are documents that embody a specific property right. They are usually issued by companies, governments or other issuers and are used to raise capital. Securities can take various forms, including stocks, bonds, warrants and mutual fund shares.

Types of securities

Shares

Shares are shares in the share capital of a stock corporation and entitle the holder to participate in profits and losses as well as to have a say in the general meeting.

Bonds

Bonds are debt securities issued by companies or governments to raise capital. The buyer of a bond lends money to the issuer and in return receives regular interest payments and the right to have the borrowed amount repaid on the due date.

Warrants

Warrants are securities that give the holder the right to buy or sell an underlying asset at a specific price. They are therefore derivative financial instruments that speculate on price movements of other securities.

Mutual fund shares

Mutual fund shares are shares in an investment fund that pools the capital of many investors and invests it in various securities. Investors participate in the fund's profits and losses according to their shares.

How do securities work?

Securities function through supply and demand on the capital market. Issuers issue securities to raise capital, while investors purchase these securities to invest their assets and earn returns.

Trading in securities takes place on stock exchanges or over-the-counter trading venues. This is where supply and demand meet and determine the price of the securities traded. Price formation occurs through the coincidence of buy and sell orders from market participants.

Risks and opportunities of securities

Securities offer investors opportunities for returns and participation in company successes. At the same time, however, they are associated with various risks, including price risks, issuer risks and market risks. Before purchasing securities, investors must inform themselves about the risks associated with them and weigh their investment decisions accordingly.

Tax and legal aspects

Tax and legal aspects can play a role when trading and owning securities. Capital gains from securities are subject to taxation in many countries, although there may be differences between individual types of securities and holding periods. In addition, investors must observe the legal framework for trading and owning securities in order not to get into legal difficulties.

Conclusion

Securities are important instruments for raising capital and creating wealth. They offer opportunities for returns and participation in company successes, but are also associated with risks. Investors should obtain comprehensive information and carefully consider their investment decisions before purchasing securities. With the right knowledge and good risk management, securities can be a useful addition to your own investment portfolio.