A security is a financial instrument that represents ownership, a creditor relationship, or rights to ownership. A security can be bought, sold, or traded.
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Last Updated: December 8, 2025
The definition of security is a tradable financial instrument that holds some kind of monetary value. Securities are bought and sold every day on electronic exchanges all over the world.
In the United States, securities usually fall into one of three main categories:
Next, this guide will explain each of these in greater detail.
Equity securities almost always mean stocks. People who own a company’s stocks are called “shareholders.” Unlike some other types of securities, the value of equity securities depends not only on how well the company does, but also on the performance of financial markets. Equity security benefits can be numerous, but they can also be risky investments.
If a small business is formed as a corporation, the entrepreneur may be able to issue equity securities to their investors.
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The debt security definition is more complicated than equity securities. Debt securities are often called bonds or notes. They are a way for a company or government entity to borrow money. When an individual buys a bond, the bond includes the amount that the other party must repay, the rate of interest, and the date it must be paid by.
What are derivative securities? They’re like a combination of an equity and a debt security. Unlike a security that derives its value from the value of the company, a derivative often derives its value from commodities like natural resources. Derivatives can also be structured from other types of securities. These are some of the most complicated types of securities and are usually traded by professional investors like hedge funds.
Many equity securities are listed on public stock exchanges. Companies can list their stock in these regulated markets. The rise of informal, electronic trading platforms and lower prices for listing a company on smaller exchanges has allowed investors to trade stocks “over the counter.” This means that stocks can trade directly between investors online or over the phone.
Some types of securities can only be offered directly to a company’s investors. This is known as a private placement, and usually, investors have to meet certain criteria to invest. Private placements can apply to equity securities, securities in private companies, debt securities, and derivatives.
A corporation wants to raise money to fund research and development. The company’s CEO decides to issue more stock and lists it on the New York Stock Exchange. The public is very excited about the company’s potential. Many people buy the stock, the stock price goes up, and the project is a success. The business also has hundreds of happy new shareholders who own the company’s equity securities.
Starting a business and managing the investments that come with it can be an overwhelming prospect; thankfully, ZenBusiness can help. With their business formation services, it’s easy to get an LLC or corporation up and running smoothly. The brand’s Worry-Free Compliance tools can even help business owners stay up-to-date on all of their business filings so they can focus on their business, not paperwork.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. For specific questions about any of these topics, seek the counsel of a licensed professional.
Written by ZenBusiness Editorial Team
The ZenBusiness Editorial Team has more than 20 years of combined small business publishing experience and has helped over 850,000 entrepreneurs launch and grow their companies. The team’s writers and business formation experts are dedicated to providing accurate, practical, and trustworthy guidance so business owners can make confident decisions.
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