Investment Securities are purchased by financial intermediaries, such as broker-dealers, as a form of short-term speculation. Investors can use these securities for a variety of purposes, including long-term investment, resale, and short-term speculation. However, investment securities are not the only types of securities available.
Different investment securities have varying risk levels. Investors must consider their personal risk tolerance before deciding which investment securities to purchase. Those with a higher risk tolerance may want to buy more risky investments, such as bonds. Others may choose dividend-paying stocks for their portfolios. Banks usually purchase common stock shares that pay regular dividends, as they have a low risk tolerance.
Investment securities can be debt securities, equity in companies, and/or cash. These securities are often purchased by banks as collateral and are typically the primary source of revenue. Most banks report these securities on their balance sheets, where they are carried at amortized book value. While there are various types of investment securities, the most common ones are stocks, bonds, and municipal bonds.
Investment securities have special legal meanings under United States law. The Uniform Commercial Code defines this concept. It governs the ownership aspect of a security and the transaction between the buyer and seller.
