What is a financial security?

Question

There are two sources that I have found about securities and am not sure how they are consistent with each other.

The first one is from Wikipedia article about financial instruments:

Financial instruments can be categorized by form depending on whether they are cash instruments or derivative instruments:

• Cash instruments are financial instruments whose value is determined directly by markets. They can be divided into securities, which are readily transferable, and other cash instruments such as loans and deposits, where both borrower and lender have to agree on a transfer.

• Derivative instruments are financial instruments which derive their value from the value and characteristics of one or more underlying entities such as an asset, index, or interest rate. They can be divided into exchange-traded derivatives and over-the-counter (OTC) derivatives.

The second is from Wikipedia article about securities:

A security is generally a fungible, negotiable financial instrument representing financial value.1 Securities are broadly categorized into:

• debt securities (such as banknotes, bonds and debentures),
• equity securities, e.g., common stocks; and,
• derivative contracts, such as forwards, futures, options and swaps.

So the first one says securities are a special kind of cash instruments (distinct from derivative instruments) that are readily transferable. The second says securities are fungible and negotiable financial instruments including derivatives.

1. Are they consistent with each other? If not, what is the definition?
2. Do securities include derivatives?
3. Does "transferable" mean the ability to sell the security after its firs purchase? Is it same as "tradable"?
4. What is the opposite concept to securities?

Thanks and regards!

Answer 1

First, realize that Wikipedia is written by individuals, just like this board has thousands of members. The two definition were written and edited by different people, most likely. Think Venn diagram. The definition for financial instruments claims that it's the larger set, and securities is contained in a subset.

Comparing the two, it seems pretty consistent. Yes, Securities include derivatives. Transferable is close to tradable, although to me tradable implies a market as compared to private transfers. I don't believe there's an opposite, per se, but there's 'other stuff.' My house has value, but is not a security. My coffee cup has no value. Back to the concept of Venn. There aren't really opposites, just items falling outside the set we're discussing.

I'd caution, this is a semantic exercise. If you know what you're buying, a stock, a bond, a gold bar, etc, whether it's a financial instrument or security doesn't matter to you.