Finance

Securities Trade and its Components

Securities Trade and its Components

Introduction:

Securities, in the financial world, can be defined as a financial instrument that grants its owner a stake in an asset that can be bought and sold. Securities are traded in the securities market. The demand and supply of securities in the securities market determine the price of securities. The securities market constitutes various submarkets such as the Capital market as well as money market, primary market as well as a secondary market, and organized exchanges as well as over the counter market. It provides a regulated framework for efficient mobilization of capital from investors to businesses in the financial system.

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Components of Securities Trading:

  1. Security:

The first element of securities trading is of course security. It can be defined as a financial instrument that grants its owner a stake in an asset that can be bought and sold. Securities are traded in the securities market.

  1. Counterparty

Counterparty includes parties involved in a financial transaction. Every buyer in a transaction must be paired up with a seller who is willing to sell the security and vice versa. Without a counterparty, the trading cannot happen.

  1. Trade Date:

A trading date is determined for all types of trade and transactions in the securities. It refers to the month, day, and year on which the order execution takes place. It is different from the settlement date which occurs after some lag. Settlement date commonly denoted as ‘T + Lag days’ such as T+1, T+2, and so on. Here, ‘T’ is the Trade date.

  1. Settlement Date

As mentioned, the Settlement date occurs after some lag from the trade date. It is the date on which the securities legally change hands. It marks the time of legal transfer of securities effected between the buyer and seller of securities. Settlement date commonly denoted as ‘T + Lag days’ such as T+1, T+2, and so on.

  1. Trading Book

The trading book is a collection of several instruments held by a broking firm or a bank. The trading book constitutes financial instruments that are bought or sold for various reasons.  Trading books do not have a fixed size. They act as a kind of accounting ledger and track the securities being held by a financial organization that is actively traded.

  1. Trade Time

Trade time indicates the time of the last trade. This is stored in UTC but will be published according to the current time zone.

  1. Value Date

The value date is similar to the settlement date. Though, there are some differences. Unlike settlement date, value date can fall on any date of a month. The meaning of value date differs for different types of transactions. In the forex market, it refers to the date when a trade is expected to be settled. For spot transactions, it is usually two business days after the date upon which the transaction was agreed to.

  1. Volume of Trade

Trading volume means the number of shares or contracts that belong to given security traded on daily basis. It provides the measure of the number of transactions between a given period.

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Conclusion:

Security trading refers to buying and selling of securities or financial instruments. Without the components, the trading of security can not take place in a proper manner. Thus, the above-mentioned components facilitate the trading of security.

Author: Hetvi Shah

About the Author: Hetvi is a BBA(Finance) graduate. She is currently pursuing an MBA with Finance specialization. She has a keen interest in Financial Market, Financial Management, and Financial Analysis.

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