What is 'Security'

Security
Money is one of the greatest assets a human being can have and protecting it at all costs is one of the top priorities of every rational person. This is where the concept of security comes up, it is basically a reassurance to one that his money and other assets are safe even in risky situations so that a person could continue spending it without fear which is needed for development.

What is Security?
Security basically can be considered as a tool, a fungible and negotiable one that offers a monetary value. This is essentially a certificate signifying ownership of a particular asset in a variety of forms. Its very nature makes it tradable i.e. transferring its ownership from person to person.

Security Definition
The definition of security in layman’s terms can be described in a simple sentence, a valuable financial asset with a monetary value allowing it to be traded, sold, or bought.

Types of Securities
Securities are of many types and depend from county to county, however, they can be boldly categorized into four major types:

Equity Securities
Such types of security are often used synonymously with stocks or shares which an individual holds. This type of security is a never-ending source of income for the bearer since the shareholders or the stockholders are paid regularly in form of dividends which can be cashed out at any time.

However, this security is unstable as well since the stock or share price is variable with it rising and falling as per the market conditions and the company’s fortunes, this also leads to the incomes rising and falling as well.

Debt Securities
This security is pretty comparable to the above-mentioned one, however, there is one major difference, this mechanism works on borrowed money rather than a proper income source. Just like money lending, the assets are lent from one party to another. The lending party then has debt security as it receives its asset as it is but also some additional profit in the form of interest, the rate of which is mutually decided by both the parties. So, the lending party keeps increasing its money as time goes on.

Hybrid Securities
If we go by the name, then hybrid securities are essentially a culmination of debt securities and equity securities. This is a rare occasion and there are a few examples of this such as:

Equity Warrants

• Convertible Bonds
• Preference Shares
• Derivatives

This security is an oddball since it isn’t really based directly on the main asset as the above ones, rather it puts its focus on the underlying assets, and their value is based on their purchase or repayment with all the factors at play like the interest, maturity, and price. There is a catch here though, the seller doesn’t exactly need to own the asset as long as he can offer the buyer enough cash to purchase the asset for himself.

Securitization Advantages
Having security has major advantages in it, some of the advantageous securities are:

• Retirement Money
• Insurance in an event of disability
• Life Insurance
• Insurance on Property
• Academic Savings

Securitization Disadvantages
Having security comes with its fair share of disadvantages of well, a major contributing factor to which is the risk. If we go over each type of security, we see that each poses a risk, and dealing with them requires a lot of knowledge and forward-thinking since falling into its harm is not that difficult.

If we take equity security, we can see that the market is a volatile space, with the monetary values falling and rising each second, so if a person were to buy stocks or shares in bulk for a large amount of money, there is a very real possibility that the market could crash the next day and their millions would be worth pennies in an instance and this is a problem which each buyer has to keep in mind and to have proper countermeasures in place prior itself.

Coming to the second type of security i.e. debt security, the person taking the debt could easily fall in a web called the debt trap where he is unable to pay it off and it keeps increasing day by day which makes it last generations and reaches a stupendous amount of money. Long story short, it is a risky business and not suitable for rookies or less experienced people.

What is security in finance?
security in finance refers to negotiable as well as fungible certificates which can be transferred from one to another.

How many types of securities are there?
Are the security laws the same around the world?
There are four major types of securities which are:

1. Equity Securities
2. Debt Securities
3. Hybrid Securities
4. Derivatives

No, security laws vary from region to region and one should be aware of them before any financial commitments.

Disclaimer: This content is authored by an external agency. The views expressed here are that of the respective authors/ entities and do not represent the views of Economic Times (ET). ET does not guarantee, vouch for or endorse any of its contents nor is responsible for them in any manner whatsoever. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified. ET hereby disclaims any and all warranties, express or implied, relating to the report and any content therein.