Key Differences Between Available-for-Sale Securities and Held-for-Trading
1. Classification
The main difference between available-for-sale securities and held-for-trading securities lies in their classification. Available-for-sale securities are investments that are not intended for immediate resale and are not held for trading purposes. On the other hand, held-for-trading securities are investments that are bought and held with the intention of selling them in the near term.
Available-for-sale securities are typically long-term investments, while held-for-trading securities are short-term investments that are actively traded in the market.
2. Measurement
Another key difference between available-for-sale securities and held-for-trading securities is the way they are measured and reported on the financial statements.
Available-for-sale securities are initially recorded at cost and are subsequently measured at fair value. Any unrealized gains or losses on these securities are recognized as other comprehensive income and are reported as a separate component of shareholders’ equity. These gains or losses are not recognized in the income statement until the securities are sold.
On the other hand, held-for-trading securities are initially recorded at fair value and are subsequently measured at fair value. Any unrealized gains or losses on these securities are recognized in the income statement as part of the trading income or loss.
3. Intent
The intent behind holding available-for-sale securities and held-for-trading securities also differs. Available-for-sale securities are held with the intent of generating income through dividends, interest, or capital appreciation over the long term. These securities are not actively traded and are held as part of a long-term investment strategy.
Held-for-trading securities, on the other hand, are held with the intent of profiting from short-term price fluctuations. These securities are actively traded and are bought and sold frequently in order to take advantage of market movements.
Emily Bibb simplifies finance through bestselling books and articles, bridging complex concepts for everyday understanding. Engaging audiences via social media, she shares insights for financial success. Active in seminars and philanthropy, Bibb aims to create a more financially informed society, driven by her passion for empowering others.