Security

A security is a tradable financial instrument that represents some form of financial value. Securities can be broadly categorized into equity securities (like stocks), debt securities (like bonds), and derivatives (like options and futures). Understanding securities is fundamental to investing and financial markets. Equity securities represent ownership in a company. When you buy stock, you're purchasing a small piece of that business and have a claim on its assets and earnings. The value of your equity rises and falls with the company's performance and market conditions. Stockholders may receive dividends and have voting rights on corporate matters. Debt securities represent money that has been borrowed and must be repaid. Bonds are the most common debt security, where the issuer promises to pay interest and return principal at maturity. Other debt securities include Treasury bills, commercial paper, and mortgage-backed securities. Debt securities are generally considered less risky than equity securities. Derivative securities derive their value from an underlying asset. Options give the holder the right to buy or sell an asset at a specified price. Futures obligate parties to buy or sell at a predetermined future date and price. Derivatives can be used for hedging risk or speculation. Securities markets provide several important functions in the economy. They allow companies and governments to raise capital, enable investors to allocate their savings productively, provide price discovery through trading, and offer liquidity so investors can convert their holdings to cash. Securities are regulated to protect investors and maintain market integrity. In the United States, the Securities and Exchange Commission (SEC) oversees the securities industry, enforcing disclosure requirements and fraud prevention. Companies that issue securities must register with the SEC and provide regular financial reports. For investors, understanding different types of securities and their characteristics is essential for building an appropriate portfolio matched to their goals, risk tolerance, and time horizon.