Legal Definitions - hybrid security

A hybrid security is a type of investment that combines features of both debt and equity securities. It is a financial instrument that can be traded on the market and represents ownership in a company or government entity.

For example, a convertible bond is a type of hybrid security that can be converted into shares of stock. This means that the bondholder has the option to convert their bond into stock at a certain price, giving them the potential to benefit from the company's growth.

Another example of a hybrid security is a preferred stock, which combines features of both common stock and bonds. Preferred stockholders receive a fixed dividend payment, similar to bondholders, but also have the potential to benefit from the company's growth, like common stockholders.

Overall, hybrid securities offer investors a way to diversify their portfolio and potentially earn higher returns than traditional debt or equity securities.