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
According to the Good Security Questions website, answers to a good security question should meet these criteria: Safe: Cannot be guessed or researched. Stable: Does not change over time. Memorable: Can be remembered.
What is the answer to the security question? ›
The answer to a good security question should be obvious. In addition, it should be easy to remember, but at the same time remain secret to others. The answer should be immediately remembered as soon as the user receives the security question.
What should I put as my security question? ›
A list of good security questions you could use
- What was the name of the boy or the girl you first kissed? ...
- Where were you when you had your first kiss? ...
- In what city did you meet your spouse/significant other? ...
- What is the middle name of your youngest child? ...
- What was the name of your first stuffed animal?
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 4 basic of security? ›
The four basic layers of physical security are design, control, detection, and identification. For each of these layers, there are different options that can be utilized for security. Physical security design refers to any structure that can be built or installed to deter, impede, or stop an attack from occurring.
How to answer secret questions? ›
Tips for Making Strong Answers for Your MyID Secret Questions
- Safe (The answers can't be easily guessed or researched.),
- Stable (The response will not change - Example: Where did you lose your first tooth? will always be answered: At Aunt Jane's house.),
- Memorable (So you won't forget it.),
Make sure you have secure questions and answers: If your friends, family, or anyone else can guess or research your answers, you need to change the questions. For example, avoid questions about your birthday, elementary school, first car, or mom's maiden name.
Why do I need to answer security questions? ›
Security questions are usually used by banks, online services, etc. The purpose of asking such questions is to add another layer of security alongside your password.
What security means to you? ›
Security means that girls, adolescents, young women and vulnerable groups can all feel safe, without fear of danger that could cause us physical, psychological or material harm.
What security questions do banks ask you? ›
A bank will typically just ask questions to confirm you are who you say you are. Name, address, birth-date, social security number (if you're in the US.) They may then ask questions like addresses you used to live on, family members related to you and other things that may show up on a quick background check.
Security measures enhance safety, prevent incidents, protect property, and contribute to the overall well-being of individuals and communities. Let's appreciate the efforts of security professionals and work together to create a secure and harmonious society for everyone to thrive in.
