Security is a tradable financial asset that holds some type of monetary value.
Securities are broadly categorized into:
- Debt securities (Example : banknotes, bonds, and debentures
- Equity securities (Example stocks)
- Derivatives (Example : , forwards, futures, options, and swaps).
The company or the entity issuing the security is called the Issuer. Every country has its own regulatory structure which determines security.
Cryptocurrencies are currently not categorised as securities.
Debt Security :
A debt security represents borrowed money that must be repaid. The issued security ( usually a paper contract – examples: corporate bonds, certificates of deposit, collateralized securities ) has details like the size of the loan, interest rate, and maturity or renewal date and other stipulated contractual rights.
Investors ( rather than traders ) usually buy these debt securities and they will be entitled to regular payment of interest and repayment of principle (regardless of the issuer’s performance)
These debt securities are typically issued for a fixed term, at the end of which they can be redeemed by the issuer.
An equity security is basically shares in a company, trust or partnership. The holder of an equity is called a shareholder, owning a share, or fractional part of the issuer.
A derivative is a contract that derives its value from the performance of an underlying entity. This contract between two parties defines all the conditions ( especially the dates, resulting values and definitions of the underlying variables, the parties’ contractual obligations ) under which the payment will be made between the parties.