Explanation:Securities are traded on the exchange markets. Although the term refers to all types of financial instruments, there are differences in its legal definitions, which mostly consider equities and fixed income as securities. Nevertheless, securities can be stocks, bonds, mutual funds, interest-bearing Treasury bills, notes, derivatives, warrants, and debentures. Furthermore, interests in oil-drilling programs are also considered securities. The legal entity that issues securities is the issuer of the security. Securities differ in their level of inherent risk. For example, equities are considered riskier than bonds, but also some equities are riskier than other equities. Depending on the level of risk that an investor wants to accept, he selects the relevant securities. Moreover, securities differ in their level of liquidity. Highly liquid securities like bonds, equities and money market instruments are traded more frequently because investors can increase their price by buying more securities and realizing a higher return on investment.
In a nutshell:
- Securities are fungible and tradable financial instruments used to raise capital in public and private markets.
- There are primarily three types of securities: equity—which provides ownership rights to holders; debt—essentially loans repaid with periodic payments; and hybrids—which combine aspects of debt and equity.
- Public sales of securities are regulated by the SEC.
- Self-regulatory organizations such as NASD, NFA, and FINRA also play an important role in regulating derivative securities.