Canadians have plenty of choice when it comes to investment instruments. Banks and other entities offer income-generating investments such as promissory notes, provincial government and government of Canada treasury bills, and guaranteed investment certificates. Other instruments to choose from include financial and commercial paper, banker deposit notes, and banker’s acceptance.
Safe Income-Generating Investments
Savings and money market accounts are safe investment solutions, but they aren’t the only ones. Government treasury bills are also considered safe because payment is guaranteed by the authorities. This is a short-term investment instrument that is liquid and offered with 1 year and 6, 3, 2, and 1 month terms. Provincial government promissory notes and treasury bills are another option for those who are looking for fixed income securities. The return is equal to the difference between the value at maturity and the original purchase price. The requirements for promissory notes and treasury bills are different. The minimum investment is higher for promissory notes ($100,000) compared to treasury bills ($25,000).
Other investment instruments offered by Canadian banks include wholesale investment, dual rate, treasury, and business investment accounts.
Options and Stocks
Stocks are suitable for seasoned investors because they are riskier than other instruments. The major markets are the dealer and auction markets. The value of stocks traded on the major exchanges is determined by supply and demand. The New York and Toronto Stock Exchange are examples of auction markets where stocks are actively traded.
There are different types of orders including limit and market orders. The former can be divided into stop limit, stop loss, open, and day orders.
Another idea is to get involved in option trading. This instrument is not suitable for new investors due to the risk of loss. Option trading is also associated with imperfect hedge and timing risk. There are different factors that determine option prices, including volatility, time value, intrinsic value, and others. To mitigate risk and increase their returns, investors use different strategies such as covered call write, short put and short call, and long put and long call. Other strategies include short and long combinations, bull put and bull call spread, and bear put and bear call spread.
Other Investment Solutions
Other solutions available to investors include mutual funds, term deposits, foreign currency accounts, and commercial paper. Commercial paper, for example, is in the form of negotiable promissory notes. This is a short-term investment instrument issued by large companies. Guaranteed investment certificates are also short-term solutions that earn interest at a predetermined rate. Finally, banker deposit notes are short-term, highly liquid instruments that are issued by banks. The maximum maturity is 1 year.