Convertible bonds are a type of securities that allow for performing operations with them in the stock market to obtain capital growth. If the classical form of the bond is a form of emission of debt securities, on which are guaranteed to get the owner of the financial institution issuing the securities (bond issuer) with a nominal value indicated to the expiry of the designated period, the convertible bond can be exchanged for a certain number of ordinary shares issued by the companies stipulated fixed price. The main attraction of convertible bonds to investors is the ability to earn less on guaranteed income, but on fluctuations in stock on the exchange. That is, simply put, the scheme of the convertible bonds is as follows: buying these securities, we consider not only its value at par, but there prescribed by a value in the shares of the company "A", subject to the price increase the company's shares "A" owner convertible bonds has an opportunity to exchange their securities and sell the shares received, having thus, the profit with no risk of direct investment in shares of the company "A".
Convertible bonds, like any other financial instrument has its own advantages and disadvantages, the possibility of obtaining the benefits or vice versa. This type of investing is particularly attractive due to aggregate in a single sentence to potential investors as a growth potential that is inherent in the shares, and an element of protection against the risks of falls in the price of securities. This simultaneously increases the stability of investments in such securities and reduces the likelihood of financial loss. In addition, the frequency of issue of convertible bonds is much higher than the frequency output of convertible preferred shares, on which you can receive a quarterly profit. Thanks to this state of things investors can easily maintain financial mobility, more quickly in response to fluctuations in the stock quotes. In addition, the instrument convertible bond provides benefits not only for the issuing company, but investors and ensure the reasonable limits of risk of financial investments. After all, even the periodic reduction of quotations does not interfere with earning interest income, which provides a certain level of return to a base amount of financial investment. In addition, convertible bonds can be exchanged for shares of the ordinary type, belonging to a particular corporation at any time when the price of such shares will rise above the fixed price of conversion and before the expiry of their validity.
There are, of course, potential drawbacks for investing in a convertible bond form: among experienced gamblers, they do not run due to their relatively low prevalence of and problems with the tracking of courses in them for long periods of time. In addition to this lack of research specialists have shown that in recent years (especially in the crisis years) the possibility of depreciation of the convertible bonds is slightly higher than other corporate debt obligations, due to the fact that they are produced, as a rule, among companies that have adverse financial condition. It is estimated that approximately forty-five per cent convertible bonds that have emerged over the past five years, are issued by companies involved in high technology. On the one hand - this is a very promising direction, but on the other - the conditions of crisis, the presence of considerable problems in the technology sector increases the probability of default for the shares of companies in this field and bankruptcy, and as a consequence, and the fall in bond prices. Significant harm to the reliability of convertible bonds brings an interest in these securities, so-called hedge funds. The problem is that these are the funds may be most significant in financial terms of the transaction, which take part in convertible bonds, while pursuing the game to lower the stock prices of the relevant company, thus, stimulate the discharge of the shares and as a consequence - a drop in prices. Therefore, achieving the set conversion rate becomes impossible, the bonds into shares, respectively, no one will be converted, the company faced with the need to pay the interest on convertible bonds, which expects to get a hedge fund. But ordinary investors who are interested primarily in the growth of stock price, meanwhile, are losing their profits.
