A debt security is sold to an investor under the stipulation that it will be paid back at the end of a pre-determined time period. Payments on debt securities may or may not involve interest. Debt securities are sold with a fixed amount, called the “par.” However, they are often sold below par. For instance, a seller might unload a security worth $1,000 for $900. The “discount” is used to give more incentive to the investor.
Debt securities can be issued by a corporation or a government agency. The time that a debt is granted for varies. There are some that will be repaid within a day, while there are others that will not be paid for several decades. Like most loans, there are some debt securities that require collateral. However, some will simply be granted based on a person’s good credit.
Types of Debt Securities
There are a number of different debt securities available. Corporate and municipal bonds are two of the most popular. A person can also secure U.S. government securities and money market securities.
Most investors fall into one of two categories: short-term or long-term. A short-termer wants to hit things fast and move onto the next trade. A long-term investor, on the other hand, is willing to stick things out through the inevitable ups and downs of the market. Debt securities actually provide something for each type. An investor can generally find debt securities that fit his financial needs and that fit in with his trading style.