A financial security is some type of financial instrument that is negotiable and has a recognized financial worth. Usually referred to simply as securities, the financial security can take on several forms. Generally, a financial security will have the potential to generate some additional return above face value for either the holder of the issuer of the security.

One common example of a financial security is a debt security. Primarily securities of this type include bonds, debentures, and banknotes. A bond issue normally provides a fixed return above the purchase price or face value of the instrument. Debentures are written acknowledgments of debt owed and can be used by the lender to designate an asset. Banknotes are essentially promissory notes that can be called at any time and as such also represent a negotiable asset.

Equity securities are a second classification of financial securities. Within this category, the financial security may be stock of some type. This would include common stocks, preferred stocks and various other classes of stocks. All types of stock represent a financial asset that may be sold or used as collateral if necessary.

A financial security may be issued by a number of different entities. Federal government agencies or even local municipal governments may choose to issue bonds as a means of financing an upcoming civic improvement project. Commercial companies often issue shares of stock to be purchased and sold on the open market. Even banking organizations that operate on an international basis may issue some form of financial security. While this is not always the case, a financial security issued by a government entity is likely to carry an interest rate that is lower than any security issued by a commercial company.

In most cases, the purpose of issuing a financial security is to generate new capital in some form. This is accomplished by attracting people who wish to invest in the security, due to the potential for generating new capital in the form of interest. Some types of financial securities can guarantee a return over time, such as with a bond issue. Other examples of the financial security, such as a stock issue, carry a greater degree of risk. However, a financial security with a greater risk usually also carries a higher potential to generate additional returns.