Understanding Securities

For the uninitiated, the stock market and all of the terms associated it can be as clear as mud. While most of us have a basic understanding of stocks themselves, our eyes tend to glaze over when presented with related concepts. So if you have no idea what securities are, you're certainly not alone.

Actually, the concept of securities is not terribly complicated. In fact, a stock is a kind of security. In the financial sense, security is defined as a document that represents ownership of a given asset. In addition to stocks, securities assign ownership of bonds, treasury certificates and more.

Some securities are issued to people chosen by the issuer. This is called private placement, and an example is stock in a privately held corporation. Privately placed securities may not usually be publicly traded on the stock market.

Securities that may be traded publicly are called public offer securities. This is the type of security that is traded on Wall Street. The issuer makes a certain number of shares available in an initial public offering, or IPO. These shares may then be traded among investors. The issuer may later decide to issue more shares.

Securities may be registered, or they may be bearer instruments. Registered securities bear the name of the holder, and they are also registered by the issuer or his agent. Bearer securities may be freely traded without consulting the issuer. Bearer securities are uncommon in the United States, and are restricted in most countries.

Securities Law

Due to the nature of securities, fraud is a common occurrence. Criminals may alter legitimate securities or produce counterfeit ones. Another type of securities fraud that we often hear about is insider trading. This occurs when information about a security that is not available to the general public is used to make trading decisions.

To combat securities fraud, the federal government tightly regulates stocks, bonds and other investments. In fact, there is an entire agency dedicated to the regulation of securities. The Securities and Exchange Commission, or SEC, investigates fraud related to the sale, exchange and offering of securities.

States also play an important role in fighting securities fraud. They set licensing and registration requirements for securities professionals. In some cases, those who participate in securities fraud can find themselves in trouble at both the state and federal level.

Securities themselves are quite simple. They are merely documents that entitle someone to a specific investment. The practice of trading securities is also relatively simple. The hardest part is knowing which securities to purchase and trade. An investment professional can help you get started with securities, and once you know the ropes, trading them on your own can be lucrative.