Securities are financial instruments that represent ownership, debt, or some form of contractual claim. They’re the building blocks of most investment portfolios, and they sit at the centre of how companies raise money and how investors try to grow theirs. If you buy shares, hold bonds, invest through a fund, or trade derivatives, you’re dealing with securities whether you think of them that way or not.
What Securities Really Represent
A security is essentially a claim — either a claim on a company’s assets and earnings, a claim on future repayments of borrowed money, or a claim tied to the value of something else. The form this claim takes depends on the type of security:
- A share gives you a slice of ownership.
- A bond gives you the right to interest payments and repayment of principal.
- An option or future gives you exposure to price changes without owning the underlying asset.
Even though the term sounds technical, securities are simply the instruments that let money move from those who have it to those who want to use it.
Main Categories of Securities
Securities come in a few broad groups, each with its own purpose and behaviour.
Equity Securities
These include common shares and preferred shares. When you buy shares, you own part of the company, benefit if it grows, and carry the risk if it does not. Prices move based on earnings, sentiment, economic conditions, and supply and demand in the market.
Debt Securities
Bonds, treasury notes, and corporate debt all fall under this category. Here you’re lending money in exchange for interest. Debt securities usually have less price volatility than shares but come with credit risk — the chance the issuer can’t make payments.
Hybrid Securities
Some instruments mix features of debt and equity. Convertible bonds, for instance, start as debt but can be converted into shares later. Preferred shares often act somewhere between a bond and a common share.
Derivative Securities
Options, futures, swaps, and similar contracts are classified as derivatives because their value depends on something else. They don’t provide ownership or lending; instead they give exposure to price movements, volatility, or interest-rate changes. These can be used for speculation or for hedging risk.
Collective Investment Securities
Funds like ETFs and mutual funds pool investors’ money and buy a basket of assets. When you buy a unit of the fund, the security represents your share of that pool.
How Securities Are Traded
Securities trade in different ways depending on their structure.
Exchange-Traded
Shares, many ETFs, and listed derivatives trade on stock exchanges with transparent pricing, central order books, and strict oversight.
Over-the-Counter (OTC)
Some bonds, derivatives, and unlisted shares trade directly between institutions and brokers rather than on a central exchange. Pricing can be less transparent, and terms may vary from one deal to another.
Primary vs Secondary Markets
When a security is first issued — such as a company selling new shares or a government issuing a new bond — that’s the primary market. After issuance, these securities trade freely among investors in the secondary market. Liquidity and pricing improve as more participants join the secondary market.
Why Securities Matter to Investors
Securities let investors build portfolios suited to their goals:
- Shares offer growth.
- Bonds offer income and stability.
- Funds offer diversification without having to buy dozens of assets individually.
- Derivatives offer additional control over risk and exposure.
By combining different securities, investors can adjust risk, income, and long-term growth potential in precise ways.
Risks Attached to Securities
Every security comes with some kind of risk. These include:
- Market risk: Prices move up and down with economic conditions and sentiment.
- Credit risk: Debt issuers may struggle to repay.
- Liquidity risk: Some securities are hard to sell when you want out.
- Interest rate risk: Bonds lose value when rates rise.
- Counterparty risk: Relevant in OTC derivatives where one party might fail to honour a contract.
Understanding how each security behaves makes it easier to avoid surprises when markets shift.
How Regulation Fits In
Because securities can affect economies, savings, and financial stability, regulators oversee how they’re issued, traded, and marketed. Companies that issue securities must provide accurate information, and brokers must handle client orders fairly. Regulation doesn’t eliminate risk — it simply ensures the market runs under clear, enforceable rules.