A security is a financial instrument that represents an interest in an entity, a debt of an entity or government, or a right to own or participate in an asset or group of assets. The most common types of securities include stocks, bonds, options, and derivatives.
Stocks, also called equities, represent ownership in a company and usually give the holder the right to vote on company matters and share in the company’s profits.
Bonds, also known as fixed-income securities, are a debt issued by a company or government. The holder of a bond essentially lends money to the issuer and receives regular interest payments in return and the principal back at maturity.
Options are contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a specified price on or before a specified date.
Derivatives are securities that derive their value from an underlying asset or group of assets such as stocks, bonds, commodities, or currencies. Examples of derivatives are options, futures and swaps.
These are the most common types of securities, but there are other types such as real estate investment trusts, exchange-traded funds, and mutual funds. Security holders can use securities for income, speculation or hedging.