What are the different types of tradable securities?

Marketable securities are a type of tradable investment that can be quickly converted into cash. Investors can sell tradable securities on the secondary investment market. While many investors enjoy the liquidity these investment instruments provide, some people hold marketable securities for decades. Marketable securities are classified as debt or equity securities, but not all types of debt and equity securities are negotiable.

Stocks represent an equity interest in a corporation and are a commonly traded type of tradable equity securities. Publicly traded companies issue shares during initial public offerings, and shareholders can subsequently sell those shares on the secondary market. Growing companies periodically issue more shares to raise funds for mergers and acquisitions. The share price fluctuates based on supply and demand, so while shareholders can convert the shares into cash at any time, the sale price may not equal the original purchase price. Investors hold shares in brokerage accounts and pay a trading fee to a broker who sells the shares on the investor's behalf.

Preferred shares are another type of tradable equity instrument. Someone who owns preferred stock has an equity interest in the company that issued the stock, but holders of preferred stock, unlike common stockholders, do not have voting rights. Investors who own preferred stock receive regular dividend payments, and these payments allow preferred stock prices to remain more stable than common stock prices. Preferred stock, like common stock, is generally held in brokerage accounts. Investors may sell the shares during normal business hours of the market in which the shares are traded.

Bonds are the most well-known negotiable debt securities. Corporations and governments sell bonds to raise money for short-term projects. Bondholders are actually creditors who receive a return on the premium along with interest if the bonds are held to maturity. Many investors choose to sell bonds on the secondary market before maturity. The price a bondholder receives can vary from the bond's purchase price, and some investors who need cash quickly even sell bonds at a discount.

Bank-issued certificates of deposit (CDs) are sometimes issued as negotiable securities, but CDs are generally non-marketable, and the original purchaser holds the CD until maturity. Tradable CDs are sold to brokerages who sell CDs as a conservative alternative to bonds. Banks issue certificates of deposit to raise money to issue loans, and most certificates of deposit are non-negotiable to prevent lenders from borrowing prematurely before banks have raised sufficient funds through originated loans to repay the debt. Some government bonds are also non-marketable, and the original purchaser or the original purchaser's estate must redeem the bond at maturity.

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