Characteristics of a value
First, that it can be traded or transferred, and second, that it is subject to capital loss.
What does it mean that it has to be negotiable is to say that there is a market in which I can buy or sell that value.
And the second characteristic is that this financial product has risk, that is to say, that the investment that I make in the purchase of that security may not obtain the expected return over time in simpler terms. You could lose money.
Let’s take an example a savings account will be a value. The answer would be no. And why is it not a value? First, because it is not negotiable, I could not sell my savings account to anyone and nobody could buy my savings account. There is no market for buying and selling savings accounts.
And the second is that there is no risk, the money that I have placed in my savings account will always remain over time with the differences in interest that said account may receive. But there is no risk of capital loss.
The main securities traded on an exchange are bonds and stocks.
Bonds are debt papers that can be issued by either the government or a company, called corporate bonds.
Bonds represent a source of income for an investor. When buying a bond, for example of 1,000 dollars, you would be receiving during the duration of the bond, which could be five years, an amount of interest in the form of a coupon. When the bonus expires, I would be receiving money back and I will have benefited from all the interest received during that period.
The second value is the shares. The shares are part property of a company an investor buying a share would be becoming a partner in that company because an investor would buy a share.
Investors buy stocks for two reasons: the first is because they think the stock is going to rise in price in the market. And second, they could buy it to receive the dividends that are part of the profits of a company that are given to the shareholders.
The shares are classified as common shares or preferred shares.
The third value is investment funds, investment funds are baskets that can be made up of different values of both bonds of different types and shares of different companies or could contain as many bonds as shares.
Mutual funds are divided into mutual funds and exchange-traded funds, or ETFs.
Finally, we have derivatives. Derivatives are contracts between two parties whose value will depend on an underlying that could be a share or a commodity, among others.