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 their worth from stock indexes and stocks.

Types Of Equities

1. Options:

When an investor gets to execute share trading in the stock market at an exact price, also known as the strike price, that contract is recognized as an option.

Under options, the investor is not obliged to make a purchase or a sale.

2. Warrants:

Warrants are similar to options in which the investor has approved the right but is not obliged to buy a stock or an underlying asset at a particular date in the future. Investors do not issue warrants as in options as an alternative; companies issue warrants to those who hold company bonds and preferred stocks.

3. Futures:

When a contract is made between two entities in which one investor (the buyer) buys basic security at a precise price and date in the future, it is called 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 that does the trading for futures.

Forwards Similar to futures, forwards create an obligation between two entities to exchange stock on a particular day at a specific price.

In a forward contract, money and stocks are traded only on the settlement day.

Futures contracts normally generate cash flows as they are settled daily. Trading of forwards is done over the counter (OTC).

4. Convertible Bonds:

When the bondholder can alter the bond into shares of the same company, it is considered a convertible bond. There is a maturity date and a coupon for this bond, like regular bonds. Moreover, the exchange price and conversion rate are also aspects of this. In the equity market, bond provisions feature these bonds, and they can be used in a changeable arbitrage strategy to make it secure than ordinary shares.