If you’re looking to build wealth, generate income, or add balance to your portfolio, understanding securities is a smart place to start. These financial assets—whether stocks, bonds, or something more complex—play a key role in most investment strategies. You can buy, sell, or trade them, and they often signify either company ownership, a lending arrangement, or rights to future payments.
In this guide, we’ll break down the different types of securities in finance and how they can support your long-term investment strategy.
How Do Securities Work?
By definition, securities in finance are basically a bridge between companies or governments that need capital and investors like you who want to earn returns. That means when you buy a security, you’re giving money in exchange for either ownership, like with stocks, or a promise to get paid back with interest, like with bonds.
You can buy and sell most securities on public markets like the NYSE or NASDAQ, though some trade privately. The value of these securities can go up or down depending on market conditions, the economy, company performance, and investor sentiment.
What Are the Different Types of Securities?
When discussing securities in investing, they’ll usually fall into five main types:
- Equity
- Debt
- Hybrid
- Derivative
- Asset-backed
Within those categories, you’ll find stocks, bonds, certificates of deposits (CDs), notes, certificates of interest, collateral trust certificates, investment contracts, and even interests in things like oil or gas. You might also come across derivative securities, like call or put options, which get their value from another asset, or asset-backed securities tied to things like loans or mortgages.1
Equity Securities
Equities, such as stocks, provide an ownership stake in an entity like a company, trust, or partnership. When you own equities, you may receive dividends, but they’re not guaranteed. Instead, you can earn a profit from capital gains when you sell the equities for more than you paid (if the stock’s value increased over time). Equities also usually come with voting rights, giving you a voice in certain company decisions.
Debt Securities
Debt securities—like bonds, CDs, or notes—are loans you give in exchange for regular payments with interest. The borrower agrees to pay you back over a set period of time, plus interest. Unlike equities, debt securities usually don’t come with voting rights.
Hybrid Securities
Hybrid securities, like equity warrants or convertible bonds, have features of both equity and debt securities. For example, a convertible bond pays interest like traditional debt but gives you the option to convert it into company shares later. Warrants let you purchase stock at a set price in the future.
Derivative Securities
Derivatives get their value from the price or performance of an asset, like stocks, bonds, commodities, or currencies. Some of the most common derivative securities include options, futures, and swaps. Call and put options are traded the most. Call options gain value when the price of the underlying asset rises, while put options gain value when that price drops.2
Asset-Backed Securities
Financial institutions create asset-backed securities by bundling together things like mortgages, credit card debt, auto loans, or leases and turning them into investment products. When you invest in this type of security, you get a share of the cash flow from those underlying assets paid out over time in regular installments. How much you earn, and how risky it is, depends on the tier, or tranche, of the investment you choose.3
What Are Some Examples of Securities?
Here are examples of each type of security investment:
- Equity: Shares of common and preferred stock, warrants, exchange traded funds (ETFs), and mutual funds
- Debt:S. Treasury bonds, municipal bonds, corporate bonds
- Hybrid: Convertible bonds, preferred shares
- Derivative: Call options on a stock, S&P 500 futures
- Asset-backed: Mortgage-backed securities, auto loan securitizations
What Is the Role of Securities in Investing?
Securities can play a critical role in helping you build a diversified investment portfolio. They allow you to:
- Generate income through dividends or interest
- Grow wealth through price appreciation
- Manage risk by spreading investments across different asset classes
Mixing different types of securities can give you the tools to balance risk and return according to your financial goals and time horizon.
Are Securities Typically Long-Term Investments?
Yes, you can consider securities long-term investments, but it really depends on your intent and how long you hold them. For example, if you keep a stock for several years, that’s a long-term investment; but if you buy a Treasury bill that matures in three months, that’s short-term.
On a balance sheet, long-term securities are typically listed as investments under non-current assets, while short-term securities fall under current assets. The key factor is whether the company or investor intends to hold the asset beyond 12 months.4
How to Buy and Sell Securities
Securities can trade in several ways, but you’ll mainly see two types of transactions: issuer transactions and trading transactions. In issuer transactions, a business raises capital by selling securities directly to investors like you. In trading transactions, investors buy and sell securities on the open market.5
Most of these trades happen on exchanges, or regulated marketplaces that help keep trading smooth and transparent. To buy or sell on an exchange, you’ll need an account with a brokerage firm or a broker-dealer. Sometimes, securities trade “over-the-counter,” which means through a broker-dealer network instead of a centralized exchange. And, in some cases, you can even buy stock directly from the issuing company.6,7
Why Understanding Securities Matters for Your Financial Future
Securities give you a chance to earn profits that can help you pursue your financial goals, like saving for retirement. For companies or governments issuing them, securities are a way to raise money that they can use for things like research, development, or expanding into new markets.
But remember, like any investment, securities come with risks, meaning you could lose money. It’s a good idea to talk with a financial advisor to help figure out what makes sense for your securities investing goals.
Need help finding a financial advisor in your area? Let us match you with an advisor who will put your needs first.
FAQs
What’s the difference between stocks and securities?
Stocks are a type of security that represent ownership in a company, while securities is a broader term that includes stocks, bonds, derivatives, and other financial instruments.
Are mutual funds considered securities?
Yes, mutual funds count as securities because they pool money from investors like you to buy stocks, bonds, or other assets, and regulators oversee them under securities laws.
What are marketable securities?
Marketable securities are highly liquid investments, such as stocks, bonds, or Treasury bills, that you can sell quickly on public markets at a fair price.
How are securities regulated?
In the U.S., the Securities and Exchange Commission (SEC) and other agencies primarily regulate securities to protect investors and keep markets fair and transparent.
Which types of investments are securities?
Securities include financial instruments like stocks, bonds, and mutual funds that represent ownership or debt, and they are traded by investors in financial markets. They also include options, futures, and other derivatives used for investment or hedging purposes.
What are long-term investments on a balance sheet?
Long-term investments are assets a company intends to hold for more than one year, such as stocks, bonds, or real estate held for strategic purposes. These investments are recorded under non-current assets because they are not expected to be converted into cash within the short term.
Is a stock a security?
Yes, a stock is a type of security. It represents ownership in a company, and as an investor, you can buy or sell it in financial markets.
1 Federal Deposit Insurance Corporation, “FDIC Laws, Regulations, Related Acts,” https://www.fdic.gov/regulations/laws/rules/8000-6200.html
2 U.S. Securities and Exchange Commission, “Rule Filing,”sec.gov
3 FINRA, “Money Market Securities and More”
4 U.S. Securities and Exchange Commission, “Consolidated Balance Sheets – Classification of Investments, https://www.sec.gov/Archives/edgar/data/1818382/000181838222000014/R8.htm
5 Cornell Law School Legal Information Institute, “Securities,” https://www.law.cornell.edu/wex/securities
6 FINRA, “Buying and Selling Stocks,” https://www.finra.org/investors/learn-to-invest/types-investments/stocks/buying-and-selling-stocks
7 Investor.gov, “Over-the-Counter (OTC) Securities,” https://www.investor.gov/introduction-investing/investing-basics/glossary/over-counter-otc-securities
This content is for general information only and is not intended to provide specific legal, tax, or other professional advice. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial or tax advisor.
Investors cannot invest directly in indices. The performance of any index is not indicative of the performance of any investment and does not consider the effects of inflation and the fees and expenses associated with investing.
The return and principal value of bonds fluctuate with changes in market conditions. If bonds are not held to maturity, they may be worth more or less than their original value.
The S&P 500 is an index of 505 stocks chosen for market size, liquidity and industry grouping (among other factors) designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe.
Options are not suitable for all investors.
A diversified portfolio does not ensure a profit or protect against loss in a declining market.
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