What are the types of equities?
In equity trading investment banks employ equity derivatives for the transactions they carry out every day.
However, individual investors use them seldom as they are tough to crack.
Equity derivatives are a precise type of financial derivative that derives its worth from stock indexes and stocks.
Types of Equities
Options: When an investor gets to execute share trading in the stock market at an explicit price, which is also known as the strike price, then that contract is recognized as an option.
Under options the investor is not really obliged to make a purchase or a sale.
Warrants: Warrants are similar like options, in which the investor is approved the right but is not obliged to buy a stock or an underlying asset at a picky date in future. Warrants are not issued by investors as in options as an alternative, companies issue warrants to those who hold company bonds and preferred stocks.
Futures: When a contract is made between two entities in which one investor (the buyer) buys a basic security at a precise price and date in future, it is called as futures. An obligation rather than a right is shaped in futures similar to options. When the futures contract accomplishes the specific date, the buyer needs to buy the stock.
The buyer and the seller have to buy and sell the stock and cannot let the contract expire. Exchange is the place which does the trading for futures.
Forwards Similar to futures, forwards create an obligation between two entities to exchange a stock on a certain day at a specific price.
In forwards contract money and stocks are traded only on the settlement day.
Futures contracts normally generate a series of cash flows as they are settled daily. Trading of forwards is done over the counter (OTC).
Convertible Bonds: When the bond holder can alter the bond into shares of the same company, it is taken as convertible bonds.
Like regular bonds, there is a maturity date and a coupon for this bond. Moreover, the exchange price and conversion rate are also aspects of this.
In the equity market, bond provisions feature of these bonds and that it can be used in a changeable arbitrage strategy make it secure than the normal shares.