What are the primary types of securities traded in capital markets?

Capital markets facilitate the trading of a wide variety of securities, representing ownership or debt in various types of financial assets. These securities can be broadly categorized into two primary types: equity securities and debt securities. Here's an overview of each:

1. Equity Securities:Equity securities represent ownership in a company and entitle the holder to a share of the company's assets and earnings. Equity securities typically include:

   • Common Stock: Common stock represents ownership in a corporation and usually carries voting rights, allowing shareholders to influence corporate decisions. Shareholders may also receive dividends, although these are not guaranteed and depend on the company's profitability and dividend policy. Common stockholders have a claim on the company's assets after bondholders and preferred stockholders in the event of bankruptcy.

   • Preferred Stock: Preferred stock is a hybrid security that combines features of both equity and debt. Preferred shareholders have a higher claim on the company's assets and earnings than common shareholders, but they usually do not have voting rights. Preferred stock dividends are typically fixed and paid before common stock dividends.

   • Depositary Receipts (ADRs, GDRs): These are securities representing ownership in foreign companies' shares. American Depositary Receipts (ADRs) represent ownership in foreign companies trading on U.S. exchanges, while Global Depositary Receipts (GDRs) are used for foreign companies trading in global markets.

   • Exchange-Traded Funds (ETFs): ETFs are investment funds that hold a basket of assets, such as stocks, bonds, or commodities. ETF shares can be bought and sold on stock exchanges like individual stocks, providing diversification and liquidity.

   • Real Estate Investment Trusts (REITs): REITs are investment vehicles that own and often operate income-producing real estate properties. They offer investors exposure to real estate assets and typically distribute most of their income as dividends.

   • Closed-End Funds: Closed-end funds are similar to mutual funds but have a fixed number of shares. They trade on stock exchanges, and their prices can differ from their net asset values (NAV), creating opportunities for investors.

2. Debt Securities:Debt securities represent loans made by investors to governments, corporations, or other entities in exchange for periodic interest payments and the return of the principal amount at maturity. Common types of debt securities include:

   • Government Bonds: These are debt securities issued by governments (national or local). They are often considered low-risk because governments have the ability to tax and print money. Examples include U.S. Treasury bonds, municipal bonds, and sovereign bonds issued by foreign governments.

   • Corporate Bonds: These are debt securities issued by corporations to raise capital. Corporate bonds vary in risk, with higher-yield bonds (often called junk bonds) carrying greater risk but offering higher interest rates.

   • Municipal Bonds: Issued by state and local governments, municipal bonds finance public projects such as infrastructure, schools, and hospitals. They may offer tax advantages for investors.

   • Convertible Bonds: These bonds can be converted into a predetermined number of common shares at the bondholder's discretion. They offer both debt and equity characteristics.

   • Asset-Backed Securities (ABS): ABS are backed by a pool of financial assets, such as mortgages, auto loans, or credit card receivables. They are typically structured and sold as securities to investors.

   • Collateralized Debt Obligations (CDOs): CDOs are structured debt securities backed by a diversified pool of underlying assets, including bonds, loans, and other debt instruments.

   • Treasury Inflation-Protected Securities (TIPS): These U.S. Treasury securities are designed to protect investors from inflation. Their principal value is adjusted based on changes in the Consumer Price Index (CPI).

   • Callable and Puttable Bonds: Some bonds are callable, meaning the issuer can redeem them before maturity, while others are puttable, allowing bondholders to sell them back to the issuer before maturity.

These are the primary types of securities traded in capital markets, and each serves specific investment objectives and risk profiles. Capital markets provide the platform for buying and selling these securities, allowing investors to access a wide range of financial assets to build diversified portfolios and manage risk.