Tag Archives: derivatives

How to Profit from a Loss

While it may sound strange, it is possible for investors to profit from loss. This is thanks to derivative products such as debt securities, which enable investors to actively seek failing companies, buy their debt and assume control.

This was in evidence recently in the Asia Pacific market, as India Inc. raised a record 85,000 Rupees through the private placement of corporate debt securities. Through these placements, companies issued debt securities and bonds to institutional investors, raising capital and creating profit on the back of decline.

Investing in Debt Securities: Why is it Popular in the Current Market?

There are multiple reasons why this market is popular in 2015. The first is that while there are always commercial entities that are failing and look to be on the brink of extinction, many of these consolidate and ultimately recover. This is thanks to the plethora of recovery options for insolvent firms, which offer tremendous flexibility when coping with a range of issues. With this in mind, there is always a sense that large firms will regain their strength and re-emerge into the market.

In the meantime, there share price has plummeted and create an opportunity for investors to build wealth through awesome penny stocks on the back of their recovery. There is also diversity in the debt securities market, however, and the fact remains that simply buying shares may not be the best way to prosper. As the India Inc. deal proves, there may be more value in privately placing securities or issuing bonds to investors. This is much more attractive, especially if you are dealing with a large corporate entity that has the resources to rebuild and restructure.

If a company has assumed too much debt and is on the brink of filing for bankruptcy, it becomes a prime target for investors and should be one of the top penny stocks to buy. From here, investors aim to become a major creditor by buying bonds in bulk at a rock bottom price, which in turn afford them power and control over the future development of the company’s structure. Whether the result is reorganisation or liquidation, investors are well placed to profit and earn some form of return on their original investment.

A Final Thought

Quite different to investing in the best penny stocks, the philosophy behind this type of investment is similar to other derivative markets. Essentially, there is an opportunity to profit even in the wake of loss, and debt security or bond investors make their move with a belief that the company in question will ultimately recover.

There is an inherent level of risk involved in this investment, especially if you lack a commercial background or an understanding of how to help manage and restructure debt. Timing is also a key issue, as it is important to target debt securities and bonds when the prices hit the lowest point. As the India Inc. deal proves, however, there is money to be made from ultimate stock alerts in this market and even during a strained economy.