A security is a tradable financial claim. A fund is a pooled investment vehicle that holds many securities.
Common securities:
- Stocks: ownership claims
- Bonds: debt claims
- Derivatives: contracts whose value depends on another asset
Common fund types:
- Mutual fund: bought or redeemed at end-of-day net asset value
- ETF: trades on an exchange during the day
- Index fund: aims to track an index such as the S&P 500
- Hedge fund: less accessible, more flexible, usually higher risk
One useful distinction:
- A company’s market value changes with stock price.
- That does not mean the company receives or loses cash each time the stock moves in the secondary market.
- The company directly raises cash mainly when it issues securities.