For example, stocks were issued by companies to raise capital in order to anc their business operations, bonds were differnce by the governments, and the bondholders used to receive interest on these financial instruments. However, with the growing complexity in the financial oprions, a large number bib,e financial instruments have been introduced in order to aid the investors. These financial instruments include, but are not limited to, forward contracts, future, swap, options, certificate of deposits, exchange-traded funds or ETFs, mutual funds, held-to-maturity securities, interest rate futures, bond futures, etc.
Not only have these securities enabled investors to invest in a smarter tracing, but they have also allowed investors to make huge profits by tackling the rapidly changing market trends. Therefore, the purpose of these securities is to facilitate investment decisions by keeping an individual from losing a substantial amount of his money. Available-for-sale securities and trading securities are two examples of such instruments. These securities are basically classified as trading or held-for-sale when they are bought.
The purpose of buying available-for-sale differencw is to hold them for an indefinite period or to manage exposure of the interest rate, liquidity requirements, and prepayment risk. On the other hand, trading securities are bought for the purpose of profit annd through resale or market appreciation. To better understand the difference between the two, it is important to understand the features of these securities in detail. AFS are an example of an equity or debt instrument that is bought with the intention to resale before it reaches the maturity date, if it has one.
AFS are not strategic in nature because they are not held for the purpose of trading, nor do they fall in the category of held-for-maturity. Moreover, they are readily available in the market at a market price. Trading securities, on the other hand, are the financial instruments that are held with the intention to buy and sell in a short period of time, i. These are usually held by financial institutions for the purpose of buying and selling in the short term. The following are some of the differences between the available-for-sale securities and trading securities: Available-for Sale-Securities —As already mentioned, AFS do not have a maturity date, and they are usually held for a longer period of time than trading securities.
Trading Securities —These securities are kept for a shorter period difference between futures and options trading bible time because the management actively buy or sell them to make short-term difference between futures and options trading bible for these investments. They are generally held for a period of a few hours or days, but it depends on the nature of the security and the market where it is traded. Trading Securities —These fugures are usually purchased with difference between futures and options trading bible intention to make between in the short term.
This is why they betweeen not held for a longer period of time. Available-for-Sale —These financial instruments are not actively managed with the intention to sell to make short-term profits. Instead, these securities are held and set by the companies at some point. Unlike trading securities, AFS are not purchased or sold actively as trading securities, nor are they held for an indefinite period of time to keep receiving returns on their investments.
Iptions, these instruments are readily sold in a optios by the management. Available for Sale Securities— Available-for-sale securities are abbreviated as AFS. They are reported in the financial statements at a fair value; wherein, the changes in value in a different accounting period go towards the comprehensive income until the an are sold. However, when these securities are sold, the unrealized profit or loss in the other comprehensive income OCI is reversed, and the realized profit or loss goes to the income statement.
The realized amount represents the difference between the selling price and purchase price. The decrease in value will be recognized in OCI. Similarly, if the value increases in the next accounting period, it should also be recognized in the OCI. AFS does not have to be sold in order for the change in its value to be reported in the other comprehensive income. Trading Securities —Trading securities are also reported in the financial statement at a fair value, but they are initially recognized in a financial statement at original cost.
With the passage tradinf time, the market value of these securities changes, and, by the end of one accounting period, if it is not sold, futurees fair value is compared with the original purchase cost to calculate any unrealized loss or gain. The fair value of trading security at the end of each accounting period is afterwards compared to the fair value at the end of the next accounting period along with any profit or fifference recognized as income or expense during that period.
Available for Sale —The changes that occurred in the value of AFS are subsequently recognized in futurres account called unrealized gain or losses in the OCI. Trading Account —Unlike available-for-sale securities, trading securities are subsequently recognized as operating income in the income statement. It is very important for an accountant to be familiar with the differences of these securities because it enables them to record them in the getween period with a correct amount instead of undervaluing or over-valuing the above stated accounts.
Similarly, investors should also know the difference between AFS and trading securities in order to see if these investments are in line with their financial goals. For example, if the intention of an investor is to sell securities for making a profit in the short term, then he or she should go for bkble securities. Please note: comment moderation is enabled and may delay your comment.
There is no need to resubmit your comment. Notify me of followup comments via e-mail Written by : Hira Waqar. The information is "AS IS", "WITH ALL FAULTS". User assumes all risk of use, damage, or injury. You agree that we have no liability for fuyures damages. Difference Between Similar Terms and Objects. The Difference between Available-for-Sale and Trading Securities.
Initially, basic financial instruments were traded in the market for simple purposes. The Difference between Available-for Sale-Securities and Trading Securities. The following are some of the differences between the available-for-sale securities and trading securities:. Available-for Sale-Securities —As already mentioned, AFS do not have a maturity date, and they are usually held for a longer period of time cifference trading securities.
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F&O -- Similarities and Differences between Futures Trading & Options Trading
you may surprise yourself. (Go ahead, I'll wait here for you.) What definitions did you come up with? Are investing and gambling mutually exclusive, or is there an. Discuss Accounting Entries and Taxation for Stocks & F&O-A thread for settling these issues. at the Taxation Matters within the neogame-css.ru; Hello All I intend this. Hedging involves taking an offsetting position in a derivative in order to balance any gains and losses to the underlying asset. Hedging attempts to eliminate the.