Part 12: Securities

Welcome back, Apricot Investors! In this 12th part of The Apricot Investor’s Glossary, we’ll shine a light on a fundamental building block of the financial markets: securities.

Securities: The Seeds of Your Investment Garden

Imagine your investments as a garden. Each security is like a seed you plant, with the potential to grow and bear fruit (returns). They represent ownership or a debt obligation in a company or government entity. Just as different seeds yield various fruits, securities come in diverse forms, each with unique characteristics and potential for growth.

Types of Securities

We’ve already explored some of the most popular security types in our glossary:

• Stocks: These seeds represent ownership in a company. When you buy a stock, you become a shareholder and are entitled to a portion of the company’s profits (dividends) and benefit from the potential growth in the stock’s value.   
• Bonds: When you buy a bond, you’re essentially lending money to a company or government, which promises to repay you with interest over a set period.
• Exchange-Traded Funds (ETFs): These are pre-packaged bundles of securities, like a mix of seeds. They offer instant diversification and are traded on stock exchanges like individual stocks.

There are also some security types that we’ll explore in future articles:

• Options: Options are contracts that give you the right, but not the obligation, to buy or sell a specific security at a predetermined price within a set timeframe. They are often used for hedging (risk management) or speculation. Speculation involves taking calculated risks in the hope of profiting from the asset’s price fluctuations (buying when it’s cheap and selling, when the price goes up).
• Futures: Futures are contracts to buy or sell a specific asset (e.g., commodities, currencies) at a predetermined price on a future date. They are primarily used for hedging and price speculation.
• Derivatives: These are financial instruments whose value is derived from an underlying asset, such as a stock, bond, commodity, or currency. Options and futures are examples of derivatives.

Common Characteristics of Securities

Despite their diverse forms, securities share a few fundamental characteristics:

• Tradability: Most securities are designed to be traded, either on organized exchanges or over-the-counter (OTC). This allows investors to buy and sell them easily.
• Regulation: Securities are subject to various regulations designed to protect investors and ensure fair and orderly markets. These regulations can vary depending on the type of security and the jurisdiction.
• Risk and Return: All securities carry some level of risk, and their potential returns vary accordingly. Generally, higher-risk securities offer the potential for higher returns, while lower-risk securities offer more stability but lower potential returns.
• Unique Identification: Each security has a unique identification code, such as an ISIN (International Securities Identification Number), that serves as its global fingerprint.
• Ticker Symbol: Most securities listed on stock exchanges have a short abbreviation, or ticker symbol, for easy reference and trading. For example, Apple stock’s ticker is AAPL.

Securities are the lifeblood of the financial markets. They allow companies and governments to raise capital for various purposes, such as funding new projects, expanding operations, or paying off debts. For investors, securities offer opportunities to grow their wealth through capital appreciation and income generation.

It’s important to remember that investments are subject to market fluctuations and carry inherent risks. Consider your financial goals and risk tolerance before investing.

Apricot Capital is regulated by the Central bank of Armenia.

*The examples in this text are for illustrative purposes only. This does not constitute investment advice or a recommendation to buy or sell any specific investment instrument. The past performance mentioned in this text is not indicative of future results.