Convertible Security

Convertible Security - A convertible security is an instrument of debt that combines a coupon-paying bond with the option to convert this bond so that it becomes a common stock, which has a set price. Often, these are listed as hybrid securities as they combine equity and debt features and convert them to ordinary shares on a set date, based on a predetermined ratio. When companies are doing well, investors are able to convert these securities, debentures or bonds, into stocks, which has a higher value. These stocks limit the risk and increase the potential as a diversified investment in convertibles.