Trading

Education & Tools

Partners

Open Account

All

ANALYSIS

EDUCATION

CRYPTO

COMPANY NEWS

PARTNERS

PROMOTIONS

GLOSSARY

Glossary

Marketable securities: Explained

BY TIO Staff

|August 3, 2024

In the world of trading, marketable securities are a crucial component that traders and investors need to understand. These are liquid financial instruments that can be quickly converted into cash, usually within a year. They are characterized by their high liquidity and are often used by companies to store excess cash that can be quickly accessed when needed.

Marketable securities are a broad category that includes various types of financial instruments. These can range from common stocks and bonds to Treasury bills and commercial paper. The key feature that unites these diverse instruments is their marketability, or the ease with which they can be bought or sold on a public exchange.

Types of Marketable Securities

There are several types of marketable securities, each with its own unique characteristics and uses in trading. Understanding these different types is crucial for any trader or investor looking to make informed decisions about their portfolio.

Common types of marketable securities include stocks, bonds, Treasury bills, and commercial paper. Each of these types of securities has its own unique characteristics, and understanding these can help traders and investors make informed decisions about their portfolios.

Stocks

Stocks represent ownership in a company and are one of the most common types of marketable securities. They are highly liquid and can be bought or sold on a public exchange. The value of a stock is determined by the performance of the company it represents, and stocks can provide investors with dividends, which are a portion of the company's profits distributed to shareholders.

There are two main types of stocks: common and preferred. Common stocks give shareholders voting rights in the company, while preferred stocks do not. However, preferred stocks typically come with a fixed dividend, while common stock dividends can vary.

Bonds

Bonds are a type of debt security that companies and governments issue to raise capital. When an investor buys a bond, they are essentially lending money to the issuer in exchange for periodic interest payments and the return of the principal amount at the bond's maturity date.

Bonds are considered less risky than stocks because they provide a steady stream of income. However, the return on investment for bonds is typically lower than that of stocks. The risk and return of a bond can vary depending on the creditworthiness of the issuer.

Trading Marketable Securities

Trading marketable securities involves buying and selling these financial instruments on a public exchange. Traders can profit from marketable securities by buying them at a low price and selling them at a higher price, or by earning income from dividends or interest payments.

Trading marketable securities requires a solid understanding of the financial markets and the specific characteristics of the security being traded. It also requires a strategic approach, as traders must decide when to buy and sell to maximize their profits.

Strategies for Trading Marketable Securities

There are several strategies that traders can use when trading marketable securities. These include fundamental analysis, technical analysis, and quantitative analysis. Each of these strategies involves a different approach to evaluating securities and making trading decisions.

Fundamental analysis involves evaluating a security's intrinsic value by examining related economic, financial, and other qualitative and quantitative factors. Technical analysis, on the other hand, involves evaluating securities by statistically analyzing market activity, such as past prices and volume. Quantitative analysis uses mathematical and statistical modeling, measurement, and research to understand behavior.

Risks of Trading Marketable Securities

While trading marketable securities can be profitable, it also comes with risks. These include market risk, credit risk, and liquidity risk. Understanding these risks is crucial for any trader or investor.

Market risk is the risk of losses in positions arising from movements in market prices. Credit risk is the risk of a loss resulting from a borrower's failure to repay a loan or meet contractual obligations. Liquidity risk is the risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss.

Benefits of Marketable Securities

Marketable securities offer several benefits to both individual and institutional investors. These include liquidity, diversification, and income generation.

Liquidity refers to the ease with which an asset can be converted into cash. Marketable securities are highly liquid, meaning they can be sold quickly and easily. This makes them an attractive option for investors who may need to access their funds on short notice.

Diversification

Diversification is a risk management strategy that involves spreading investments across various financial instruments or other categories to minimize exposure to any one particular asset or risk. A diversified portfolio might include a mix of stocks, bonds, and other marketable securities.

By diversifying their portfolios, investors can reduce the risk of losing money if one particular investment performs poorly. Diversification can also help to increase potential returns, as different types of investments may perform well at different times.

Income Generation

Marketable securities can also provide a steady stream of income. This is particularly true for bonds, which pay interest to investors at regular intervals. Stocks can also provide income in the form of dividends, although these payments are not guaranteed and can vary depending on the company's performance.

Income generation can be an attractive feature for investors, particularly those who are retired or otherwise in need of regular income. It can also help to offset any losses from other investments.

Conclusion

Marketable securities are a key component of the financial markets and offer numerous benefits to traders and investors. These include the potential for profit, the ability to diversify a portfolio, and the opportunity to generate income.

However, trading marketable securities also comes with risks, and it requires a solid understanding of the financial markets and the specific characteristics of the security being traded. As with any investment, it's important to do your research and consider your financial goals and risk tolerance before trading marketable securities.

Start Trading Marketable Securities with TIOmarkets

Ready to dive into the world of marketable securities? Join TIOmarkets, a top rated forex broker, and experience online trading on a platform that offers access to over 300 instruments across 5 markets, including Forex, indices, stocks, commodities, and futures. With low fees and a global presence in over 170 countries, we provide you with the tools and educational resources to trade effectively. Don't miss out on the opportunity to enhance your portfolio. Create a Trading Account today and start your journey towards successful trading!

Risk disclaimer: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Never deposit more than you are prepared to lose. Professional client’s losses can exceed their deposit. Please see our risk warning policy and seek independent professional advice if you do not fully understand. This information is not directed or intended for distribution to or use by residents of certain countries/jurisdictions including, but not limited to, USA & OFAC. The Company holds the right to alter the aforementioned list of countries at its own discretion.

Join us on social media

image-959fe1934afa64985bb67e820d8fc8930405af25-800x800-png

TIO Staff

Behind every blog post lies the combined experience of the people working at TIOmarkets. We are a team of dedicated industry professionals and financial markets enthusiasts committed to providing you with trading education and financial markets commentary. Our goal is to help empower you with the knowledge you need to trade in the markets effectively.