What is a Security?

What is a Security?

A security is a marketable ownership contract which entitles the owner to the right to use the contract as a type of currency backed by a specific asset, which could be partial ownership in a company, a debt (bond), or a derivative interest.

Securities are broadly categorized into debt securities (e.g., bonds), equity securities (e.g., stock), and derivatives (e.g., futures, options, etc.). They will generally be issued by a company or government entity and will entitle the owner of the contract the right to trade the ownership interest for value in the open market.

Some private placement investments and contracts can also be considered securities, but most securities will be registered with the Securities Exchange Commission (SEC) and are subject to regulations. Securities can trade on exchanges or Over the Counter (OTC).

Exchanges show regular competitive price updates and can act as a clearing agent. Financial instruments that contain securities, such as mutual fund shares, are also considered securities.

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