Back in the days before the electronic era, when one made an investment, they were issued with a paper certificate or a note of some sort. These served as documentation of the investment they made and as well detailed the terms of the investment. These paper certificates or notes actually served as proof of the investment made in the venture and as well they were as well known as securities. These could be sold and bought just in the same manner that we buy and sell stocks, bonds and shares of the various funds we have today.
Fast forward to this day and we have the term “securities”. By and large, today when we talk of securities, we see this term being used in reference to any other form of a negotiable financial instrument, be it stocks, bonds, the options contract or shares of a mutual fund. This may somehow still sound mind boggling and as such it may be advisable for you to consider thinking of the term “securities” to be interchangeable in use with “investment” and the “securities market” to be equally interchangeable with the “capital market” or simply “the market”. Looking at securities, these generally fall into three main groups. The main and broad categories into which securities fall into are such as; the debt securities, the equity securities and the derivative securities.
Debt securities can as well be referred to as the bonds. When a business goes for borrowing for it to grow and expand its operations, they will in most cases borrow through a ban, the traditional means for borrowing. As a result of the fact that banks as well are not ready to take so much risk, they will have some limits on the much that they will be ready and willing to advance a business as a loan. For the additional amounts, a business may then be forced to go to the capital markets and issue a debt security referred to as a bond. Now, as an investor, when you buy a bond, you are basically lending money to a company and they owe it back to you. The company as well must pay you the interest on the amount of the bond and this is what you earn as proceeds from the investment.
The other category of securities we have are the equity securities which are as well known as the stocks. These come in when a business takes on more investors for its growth plans and expansion where they can find the private investors or go to the capital markets and issue securities in the form of the publicly traded shares or stocks.