Market investing is a term that means many different things to many different people. For example, there are securities and derivatives. Instruments that are built from or depend upon base securities are termed derivatives, such as options to execute a trade at a certain price. In this instance, an instrument is sold guaranteeing the purchaser that they can execute a buy or sell at a certain price. So if a security, say an equity certificate, is selling on the market for $35 and you have an option to sell, or put, a security at $38, $3 may be obtained (minus fees, if any) by purchasing the equity at the market price and exercising the option to sell at $38. This instrument, called an option, is classified as a derivative, and is dependent upon an underlying security.
Base class securities include many types. Anything issued as a certificate of value and accepted in a market is classified as a security. Debts and equities, termed bonds and stocks respectively, are typically what are thought of being the most substantial set of securities within a market. Government also finance themselves via debt instruments such as bonds. Organizations sell equity and issues bonds to finance growth. Bonds are typically a time contract to borrow money for a certain number of years and then pay it back with interest. Stocks are a certificate of ownership within an organization, partial or whole, which sometimes represents assets within an organization.
If an organization that is funded by one or both of these instruments is found to be insolvent, then the organization goes through a process called receivership, a facilitated valuation of the organization by means of debt, assets and equity. In this process, the value of the assets usually goes to pay the debt or bonds first, then any remaining value is allocated to the equity holders based on class holdings; some types of stock will be paid in order of class share, sometimes paying full price for some classes of equity while paying nothing for others. It is not untypical for some equity holders to go without receiving any means of compensation and being told their certificate of ownership is now void and null.
Beyond these technical terms and understanding, there are additional instruments, such as those within insurance markets, commodity futures (an option used for actual goods) and currency markets, all operating upon the same foundational principles at an applied or abstracted level.
Once a, understanding of the instruments at an investor’s disposal is internalized and wielded with mastery, many other factors cloud the consideration of an investor. First, the investor must become familiar with regulations, city, county, state and federal, in order to avoid any regulatory action for questionable behavior. Then, the investor must determine either how much influence has been and can be begotten for the target ventures; or perhaps how well the endeavor will perform in the absence of influence, if that is the preference, or the extent of ability for the investor. This involves mitigating risk, placing hedges and executing upon market influencing behaviors that may effect the investments.
If the lists of tasks becomes too burdensome to be a hands-on investor, there are many traders out there, individual and organization, whose sole responsibility and discipline is to manage these tasks for entities that have capital they would like to have employed. This is done for endowments of organizations, such as universities, governments and private organizations, which either pool funds or have an interest in employing excess capital, such as a float in the case of an insurance company. There is a solution for virtually all levels of investing, many times allowing an investor to become as hands-on as they would like to be. The essential question to determine this is how much time one would like to spend investing.