Introduction

The series 7 material has been provided by The Securities Institute to help Investopedia visitors prepare for the exam. In order to successfully complete the exam it is recommended that you read the following material in addition to reading a full textbook and doing as many practice exams as you can. Series 7 textbooks, software and video training classes are available here. This first chapter will build the foundation upon which the rest of this text is built. A thorough understanding of equity securities will be necessary in order to successfully complete the Series 7 exam. Equity securities are divided into two types: common and preferred stock. We will examine the features of common stock and preferred stock, as well as the benefits and risks associated with their ownership. But first we must define exactly what meets the definition of a security.

What Is a Security?

A security is any investment product that can be exchanged for value and involves risk. In order for an investment to be considered a security, it must be readily transferable between two parties and the owner must be subject to the loss of some, or all, of the invested principal. If the product is not transferable or does not contain risk, it is not a security. Securities include:

  • Stocks
  • Bonds
  • Mutual funds
  • Variable annuities
  • Variable life insurance
  • Options
  • Rights
  • Warrants
  • Exchange traded funds & exchange trade notes ETFs / ETNs
  • CMO
  • American depository receipts

Equity = Stock

The term equity is synonymous with the term stock. Throughout your preparation for this exam, and on the exam itself, you will find many terms that are used interchangeably. Equity or stock creates an ownership relationship with the issuing company. Once an investor has purchased stock in a corporation, he or she becomes an owner of that corporation. The corporation sells off pieces of itself to investors in the form of shares in an effort to raise working capital. Equity is perpetual, meaning that there is no maturity date for the shares and the investor may own the shares until he or she decides to sell them. Most corporations use the sale of equity as their main source of business capital.

Common Stock

There are thousands of companies whose stock trades publicly and who have used the sale of equity as a source of raising business capital. All publicly traded companies must issue common stock before they may issue any other type of equity security. The two types of equity securities are common stock and preferred stock. Although all publicly traded companies must have sold or issued common stock, not all companies may want to issue or sell preferred stock. Let’s take a look at the formation of a company and how common stock is created.



Equity Terminology

Related Articles
  1. Investing

    Advising FAs: How To Explaining Stocks to a Client

    Without a doubt, common stocks are one of the greatest tools ever invented for building wealth.
  2. Investing

    What is the Series 66?

    The Series 66 exam is one of two tests required to register as both a securities agent and an investment advisor.
  3. Investing

    The Series 79 Exam: What It Is And When You Need It

    If you're getting into the field of investment banking, you'll need to know all about the Series 79.
  4. Financial Advisor

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  5. Professionals

    Prepare For Your CFA Exams

    Find out how to get yourself ready for these lengthy and often daunting exams.
  6. Financial Advisor

    CFA Vs. Series 7: Which is Easier

    Find out which is exam is easier: The Chartered Financial Analyst (CFA) exam, or the Series 7 securities exam for registered representatives.
  7. Managing Wealth

    Introduction To The Series 65 Exam

    The Series 65 is required in many states in order to be a fee-based advisor. Find out what it is and whether you need it.
  8. Investing

    Series 63, Series 65 Or Series 66?

    When joining the world of investment professionals, you must take the right exams.
  9. Personal Finance

    Tips For Passing The Series 6 Exam

    Find out what you can do during the test to make sure you get a passing score.
  10. Investing

    How to Ace the CFA Level I Exam

    Prepare to ace the CFA Level 1 exam by studying systematically.
Trading Center