What are securities?

Securities are fundamentally financial instruments that represent an ownership position in a corporation (through stocks) or a creditor relationship with a governmental body or corporation (through bonds). When someone refers to securities, they are generally talking about documents that signify ownership or a financial claim, which is inherent in the nature of stocks and bonds. Stocks represent equity ownership, while bonds denote debt.

This distinction is key in understanding what makes securities unique in the financial landscape. They are crucial for investors as they provide a means of investment and can yield dividends or interest, depending on the type of security held. Recognizing that securities serve as representations of financial claims helps in grasping their purpose in both individual investments and broader market functions.