What Is a Security?

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The term “security” covers a variety of investments, from stocks and bonds to notes and debentures. It also includes limited partnership interests, oil and gas interests, and investment contracts. Generally, any investment that offers the expectation of profit is a security. Securities are also used to raise capital by governments. In some cases, raising funds through securities is preferable to a bank loan.

Securities are financial instruments that give the owner the right to own a part of a company or government. They can be sold or bought on a secondary market or exchange. Historically, these instruments represented paper ownership, but today they are often held electronically. They may also take the form of debt, equity, or derivatives.

The Securities and Exchange Commission (SEC) is responsible for regulating the public offering of securities in the United States. However, self-regulatory organizations also take on a key role in the securities industry. The Financial Industry Regulatory Authority (FINRA) is one such organization. The National Association of Securities Dealers (NASD) is another self-regulating organization, which is a trade association for securities brokerage firms.

In addition to stocks, derivatives and options are also types of securities. While stocks are generally traded on exchanges, options, and futures are traded over-the-counter.

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