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DOMAIN Equity is a share in the ownership of a company. It represents a claim on the company's assets and earnings. As one acquires more stock, the person¶s ownership stake in the company becomes greater. As an owner, the shareholder is entitled to the company's earnings (popularly known as dividend) as well as any voting rights attached to the stock. There are two major types of stocks known as common stock or equity and preferred stock. common stock or equity : A large number of shareholders hold equity shares because they expect prices to go up. Other reward includes dividends which are paid out of profits of the company. Apart from this shareholders have a right to vote and right to information etc. preferred stock : Preferred stock represents some degree of ownership in a company but usually it does not come with the same voting rights.Normally, the holders of preference shares are entitled a fixed dividend.
Fixed income securities are securities which promise to pay a fixed amount as a return to the investors. Unlike equities, where dividends or capital appreciation can hardly be determined when the investment is made, in case of fixed income securities the interest payments (called coupon payments) and principal payments are determinable at the time of investments. From the issuer¶s perspective, these instruments represent a kind of loan or borrowing that the issuer has done. Hence these securities are also called debt securities.
Derivatives
Derivatives are financial instruments which derive their value from the value of the underlying asset. The underlying asset can be equity, fixed income instruments, interest rates, foreign exchange or commodities. The price movements of derivative products are related to that of the underlying securities.
_ Types of Derivatives
Forward Contracts ± A forward contract is a contract between the two parties which allows them to exchange the underlying asset at some future date at a price decided today. For example, a buyer may enter into a contract with a seller to buy shares of company ABC at $ 50 after one month. Thus the actual exchange takes place after a month but the price is decided today. This removes the uncertainty for both the buyers and the sellers. Futures Contracts ± A futures contract is similar to forward contracts except that futures contracts are traded on a futures exchange. Thus in case of futures
contracts, buyers and sellers execute the same through futures exchange and not amongst themselves as it happen in case of forward contracts. Because transactions are done through a futures exchange, the terms of futures contract are standardized. Options Contracts ± Suppose in an example given earlier, a buyer and a seller decide to exchange shares of ABC at $ 50 after one month, but the buyer reserves the right to sell the shares to B, then this contract is called an options contract. This means the buyer has the right but not the obligation to sell (in this case) or to buy the underlying asset. He gets this privilege if he pays some amount when the contract is entered into. This amount is known as option premium. Options can be traded on exchange or traded over the counter between two parties.
In finance, an option is a derivative financial instrument that specifies a contract between two parties for [1] a future transaction on an asset at a reference price (the strike). The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfil the transaction. The price of an option derives from the difference between the reference price and the value of the underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option. Other types of options exist, and options can in principle be created for any type of valuable asset. A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option.[1] The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right. A put or put option is a contract between two parties to exchange an asset, the underlying, at a specified price, the strike, by a predetermined date, the expiry or maturity. One party, the buyer of the put, has the right, but not an obligation, to sell the asset at the strike price by the future date, while the other party, the seller, has the obligation to buy the asset at the strike price if the buyer exercises the option.
A mutual fund company is an investment company that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal. Investors buy fund shares, which represent proportionate ownership in all the fund's securities. There is no limit on the number of shares issued by a mutual fund. A mutual fund is referred to as an "open-end" fund for two main reasons: 1) it is required to redeem (or buy back) outstanding shares at any time, at their current net asset value, which is the total market value of the fund's investment portfolio, minus its liabilities and divided by the number of shares outstanding; and 2) virtually all mutual funds continuously offer their shares to the public. Another fund available to investors is an exchange-traded fund (ETF). Although an ETF is an investment company (either an open-end fund or UIT), its structure and the trading of its shares differ significantly from traditional mutual funds or UITs. Indeed, unlike with other mutual funds or UITs, ETF shares are traded intraday on stock exchanges at market-determined prices. As such, an ETF has the features of an investment company (diversified portfolio, professional
management), but its shares trade in the retail market like an equity security. Unlike mutual funds, investors must buy or sell ETF shares through a broker just as they would the shares of any publicly traded company.
Fixed income securities are securities which promise to pay a fixed amount as a return to the investors. Unlike equities, where dividends or capital appreciation can hardly be determined when the investment is made, in case of fixed income securities the interest payments (called coupon payments) and principal payments are determinable at the time of investments. From the issuer¶s perspective, these instruments represent a kind of loan or borrowing that the issuer has done. Hence these securities are also called debt securities.
Derivatives
Derivatives are financial instruments which derive their value from the value of the underlying asset. The underlying asset can be equity, fixed income instruments, interest rates, foreign exchange or commodities. The price movements of derivative products are related to that of the underlying securities.
_ Types of Derivatives
Forward Contracts ± A forward contract is a contract between the two parties which allows them to exchange the underlying asset at some future date at a price decided today. For example, a buyer may enter into a contract with a seller to buy shares of company ABC at $ 50 after one month. Thus the actual exchange takes place after a month but the price is decided today. This removes the uncertainty for both the buyers and the sellers. Futures Contracts ± A futures contract is similar to forward contracts except that futures contracts are traded on a futures exchange. Thus in case of futures
contracts, buyers and sellers execute the same through futures exchange and not amongst themselves as it happen in case of forward contracts. Because transactions are done through a futures exchange, the terms of futures contract are standardized. Options Contracts ± Suppose in an example given earlier, a buyer and a seller decide to exchange shares of ABC at $ 50 after one month, but the buyer reserves the right to sell the shares to B, then this contract is called an options contract. This means the buyer has the right but not the obligation to sell (in this case) or to buy the underlying asset. He gets this privilege if he pays some amount when the contract is entered into. This amount is known as option premium. Options can be traded on exchange or traded over the counter between two parties.
In finance, an option is a derivative financial instrument that specifies a contract between two parties for [1] a future transaction on an asset at a reference price (the strike). The buyer of the option gains the right, but not the obligation, to engage in that transaction, while the seller incurs the corresponding obligation to fulfil the transaction. The price of an option derives from the difference between the reference price and the value of the underlying asset (commonly a stock, a bond, a currency or a futures contract) plus a premium based on the time remaining until the expiration of the option. Other types of options exist, and options can in principle be created for any type of valuable asset. A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option.[1] The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument (the underlying) from the seller of the option at a certain time (the expiration date) for a certain price (the strike price). The seller (or "writer") is obligated to sell the commodity or financial instrument should the buyer so decide. The buyer pays a fee (called a premium) for this right. A put or put option is a contract between two parties to exchange an asset, the underlying, at a specified price, the strike, by a predetermined date, the expiry or maturity. One party, the buyer of the put, has the right, but not an obligation, to sell the asset at the strike price by the future date, while the other party, the seller, has the obligation to buy the asset at the strike price if the buyer exercises the option.
A mutual fund company is an investment company that buys a portfolio of securities selected by a professional investment adviser to meet a specified financial goal. Investors buy fund shares, which represent proportionate ownership in all the fund's securities. There is no limit on the number of shares issued by a mutual fund. A mutual fund is referred to as an "open-end" fund for two main reasons: 1) it is required to redeem (or buy back) outstanding shares at any time, at their current net asset value, which is the total market value of the fund's investment portfolio, minus its liabilities and divided by the number of shares outstanding; and 2) virtually all mutual funds continuously offer their shares to the public. Another fund available to investors is an exchange-traded fund (ETF). Although an ETF is an investment company (either an open-end fund or UIT), its structure and the trading of its shares differ significantly from traditional mutual funds or UITs. Indeed, unlike with other mutual funds or UITs, ETF shares are traded intraday on stock exchanges at market-determined prices. As such, an ETF has the features of an investment company (diversified portfolio, professional
management), but its shares trade in the retail market like an equity security. Unlike mutual funds, investors must buy or sell ETF shares through a broker just as they would the shares of any publicly traded company.
