Financial securities

Financial securities, also referred to as financial instruments or financial assets, is a generic term used to describe stocks, bonds, money market securities (e.g., Treasury bills), and other instruments representing the right to receive future benefits under a set of stated conditions. .

Securities classifications
Financial securities can be classified in different ways. Here are two examples:

Classification 1:
 * Fixed-income or debt securities
 * Money market securities
 * Capital market fixed-income securities (bonds)
 * Equity securities
 * Common stock
 * Preferred stock
 * Derivative securities

Classification 2:
 * Money market instruments
 * Capital market instruments
 * Fixed-income instruments (bonds)
 * Equity instruments (common stock)
 * Preferred stock
 * Mortgage backed securities
 * Derivative instruments

Although one classification scheme uses the term "security" and the other uses the term "instrument", the references for both schemes use the terms interchangeably.

A key difference between the classification schemes is whether or not money market securities (informally referred to as cash) are considered a subset of fixed-income securities. Classification 1, which includes money market securities and bonds as subsets of fixed-income securities, is useful in that the most important asset allocation decision is the ratio of higher-risk assets (stocks) to lower-risk assets (bonds and cash). A secondary consideration is the maturity of the debt securities (lower-risk assets), the lowest-maturity securities being money market securities.

Debt securities are generally understood to include money market securities and bonds. Here the term "debt securities" will be used to describe money market securities, bonds, and other fixed-income capital market securities (e.g., mortgage-backed securities).

Although the first classification scheme does not explicitly show it, equity securities (common stocks) are considered a subset of the capital markets, as opposed to the money market. Although not clear from the classifications shown above, both references classify preferred stock as a hybrid security. The reference for Classification 1 classifies preferred stock as a subset of equities, but notes that is similar to both equity and debt. . The reference for Classification 2 classifies preferred stock as a subset of capital market instruments, but characterizes preferred stock (and mortgage-backed securities) as "not so fixed income securities".

Here is a more detailed classification scheme, broken down by market:


 * Money market
 * Treasury bills
 * CDs
 * Commercial paper
 * etc.
 * Bond market
 * Treasury bonds and notes
 * Federal agency debt
 * Municipal bonds
 * Corporate bonds
 * Mortgage-backed securities
 * Equity markets
 * Common stocks
 * Preferred stocks
 * Derivative markets
 * Options
 * Futures and forwards
 * Swaps

Money market securities
Money market securities of most interest to the individual investor are Treasury bills (T-bills) and certificates of deposit (CDs). See the linked articles for details.

Derivative securities
The most widely known derivative security is an option.