Any financial asset that can be traded
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What is a Security?
A security is a financial instrument, typically any financial asset that can be traded. The nature of what can and can’t be called a security generally depends on the jurisdiction in which the assets are being traded.
In the United States, the term broadly covers all traded financial assets and breaks such assets down into three primary categories:
- Equity securities – which includes stocks
- Debt securities – which includes bonds and banknotes
- Derivatives – which includes options and futures
Types of Securities
1. Equity securities
Equity almost always refers to stocks and a share of ownership in a company (which is possessed by the shareholder). Equity securities usually generate regular earnings for shareholders in the form of dividends. An equity security does, however, rise and fall in value in accord with the financial markets and the company’s fortunes.
2. Debt securities
Debt securities differ from equity securities in an important way; they involve borrowed money and the selling of a security. They are issued by an individual, company, or government and sold to another party for a certain amount, with a promise of repayment plus interest. They include a fixed amount (that must be repaid), a specified rate of interest, and a maturity date (the date when the total amount of the security must be paid by).
Bonds, bank notes (or promissory notes), and Treasury notes are all examples of debt securities. They all are agreements made between two parties for an amount to be borrowed and paid back – with interest – at a previously-established time.
3. Derivatives
Derivatives are a slightly different type of security because their value is based on an underlying asset that is then purchased and repaid, with the price, interest, and maturity date all specified at the time of the initial transaction.
The individual selling the derivative doesn’t need to own the underlying asset outright. The seller can simply pay the buyer back with enough cash to purchase the underlying asset or by offering another derivative that satisfies the debt owed on the first.
A derivative often derives its value from commodities such as gas or precious metals such as gold and silver. Currencies are another underlying asset a derivative can be structured on, as well as interest rates, Treasury notes, bonds, and stocks.
Derivatives are most often traded by hedge funds to offset risk from other investments. As mentioned above, they don’t require the seller to own the underlying asset and may only require a relatively small down payment, which makes them favorable because they are easier to trade.
Related Readings
Thank you for reading CFI’s guide on Security. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional CFI resources below:
FAQs
nounWord forms: plural seˈcurities. 1. the state of being or feeling secure; freedom from fear, anxiety, danger, doubt, etc.; state or sense of safety or certainty. 2. something that gives or assures safety, tranquillity, certainty, etc.; protection; safeguard.
What are the 3 types of security? ›
There are three primary areas or classifications of security controls. These include management security, operational security, and physical security controls.
What describes security? ›
Security means safety, as well as the measures taken to be safe or protected. In order to provide adequate security for the parade, town officials often hire extra guards. A small child will sometimes latch on to a blanket or stuffed animal that gives him or her the feeling of security.
How does the Bible define security? ›
To trust that our security is in the Lord is to believe that the Lord is able to provide all our needs, to protect us from evil and calamity, and to preserve our love relationship with Him and our salvation forever.
What are examples of security? ›
Security relates to a financial instrument or financial asset that can be traded in the open market, e.g., a stock, bond, options contract, or shares of a mutual fund, etc. All the examples mentioned belong to a particular class or type of security.
What are the 7 types of security? ›
These are economic security, food security, health security environmental security, personal security, community security, and political security. Some of the criteria associated with economic security include insured basic income and employment, and access to such social safety net.
What are the 4 C's security? ›
With regard to COMPUTER SECURITY ONLY you must think about security in layers. The 4C's of Cloud Native security are Cloud, Clusters, Containers, and Code. Note: This layered approach augments the defense in depth computing approach to security, which is widely regarded as a best practice for securing software systems.
What are the 5 A's of security? ›
This comprehensive guide to cloud identity management reveals the significance of the five A's: Authentication, Authorization, Account Management, Audit Logging, and Accountability.
What are the 3 C's in security? ›
The 3Cs of Best Security: Comprehensive, Consolidated, and Collaborative. Cybercriminals are constantly finding new ways to exploit governments, major corporations and small to medium sized businesses.
What are the 3 P's of security? ›
The three Ps of protect, prioritize, and patch aren't meant to be siloed instructions that happen in subsequent order. In this new business environment, all three Ps must be continually active.
Industry terms for security personnel include: security guard, security officer, security agent, safety patrol, private police, company police, security enforcement officer, and public safety.
What is a security job? ›
Overall, security officers are tasked with securing the premises and personnel by staying on patrol, monitoring surveillance equipment, performing building inspections, guarding entry points, and verifying visitors.
What does lack of security mean? ›
lacking protection or defense. dangerous, unsafe. involving or causing danger or risk; liable to hurt or harm. precarious, shaky. not secure; beset with difficulties.
What is the main responsibility of security? ›
They prevent people from performing illegal activities, detect the presence of unauthorized individuals, observe all situations, and report incidents within their area of responsibility. Security personnel also serve as first responders in case of emergencies.
What is the traditional definition of security? ›
The traditional notion of security is concerned with the use or threat of use of military forces and action. Non-traditional security goes beyond military action and focuses on the other kinds of threats impacting human existence.
What is the meaning of security in life? ›
security noun (CONFIDENCE)
the feeling of being confident in one's family and relationships: Most children need the security of a stable family life. SMART Vocabulary: related words and phrases. Confidence & self-assurance.
What is security and why is it important? ›
Security measures safeguard property and assets, whether they are physical assets such as buildings, equipment, or intellectual property. Through surveillance, access control, and alarm systems, security professionals help deter theft, vandalism, and unauthorized access.
