Securities are tradable investment instruments that represent actual financial value and are issued by companies, governments and other organizations that offer evidence of debt or equity. They can be broadly divided into two traditional categories: debt securities and equity securities. Otherwise, they can be categorized using many different systems and characteristics. For example: market capitalization, term to maturity, degree of liquidity, ownership right, currency of denomination, tax treatment, income, country or region…
They are traditionally used by commercial enterprises and governments to raise new capital. Through the use of securities, capital is provided by investors (e.g. funds, companies, people with excess cash…) as soon as the securities are issued. If the securities are debt securities, organizations issuing them offer interest rates that are usually higher than interest rates on deposits that banks offer and by this they attract investors. If the securities are equity securities, the investor becomes part owner of the company, with the size of that part proportional to the number of stocks in the investor’s possession. The investor that invested in equity securities (stocks, shares, etc.) can make a profit through dividend payments from the company whose shares are in his/hers possession, or from reselling the securities.
In recent times, securities have been used to repackage assets through a process called securitization. It enabled financial institutions to remove some assets from the balance sheet and accelerate cash flow.
Securities may be represented by certificates, which may be bearer or registered. Bearer certificates entitle the holder to rights under the securities simply by holding the security. Registered securities entitle the holder to rights under the securities only if he/she appears on a security register which is maintained by the issuer of the said security or an intermediary.
Securities are being traded in markets. Organized and officially recognized markets on which securities are traded with are called stock markets or stock exchanges. They are divided into primary and secondary markets. Primary markets are those where IPO’s are made and securities are offered for the first time. All further trading is made on the secondary market which maintains liquidity of the securities.
Also, in recent years technological advancement enabled better communication buyers and sellers of securities and forming of dealer-based OTC (over-the-counter) markets.