Different Categories of Financial Instruments in Share Market

Earning quick money is something that almost every one of us wishes to and this dream can be accomplished through investing the money into either of the financial instruments. Concerned about what are the financial instruments and how they work? Basically, financial instruments are assets that can be traded, most type of which comes with an efficient flow and transfer of capital among the investors globally. The assets can be in the form of capital that holds a contractual right to receive or deliver cash or some other financial instrument or investor’s evidence for an ownership in an entity. The instruments can either be real or virtual documents that represent a lawful consent involving some kind of monetary value. The financial instruments are categorized as:

• Equity-based (represent ownership of an asset)
• Debt-based (represent a loan made by an investor to the owner of the asset)
• Foreign exchange.

However, there are different subcategories also exist that includes: preferred share equity and common share equity. Though to deal in any of the category or subcategory, an investor is required to study the entire share market tips to understand the inflow and outflow of the capital or asset for each instrument type.

Common stock:

A great majority of share or stock is issued in the form of common stock. Typically, it represents investor’s claim on the profits or dividends and confers voting rights in the company. Therefore, share market tips are vital to learning because most often an investor gets one vote per stock owned to designate board members who supervise the major decisions of the management. In long run, common stocks have yielded greater returns than that of capital bonds in terms of capital growth. However, every coin has two sides and so does the common stocks as well. The possibility of great returns come handy with a potential risk of experiences the loss as well due to certain reasons like a company goes bankrupt and liquidates.

Preferred stock:

The preferred stocks gather the similar functions as bonds and usually don’t provide voting rights to the investors, though rarely it can vary according to the company’s norm. But, the benefit here is that the investors receive a fixed dividend in perpetuity. This is different from common stock that offers variable dividends to its shareholders those are announced by the board of directors and never guaranteed, which means the investors cannot claim the dividend. Another benefit is that the preferred shareholders are prioritized over the common stockholders and thus, pays them first. Therefore, it makes sense to keep an eye on the effective share market tips to understand the terms and conditions for both the stocks.

The author is associated with the Moneycontrol Tips and he has written many content on share market tips, stock tips and other finance related topics.