Non-Marketable Security
Contents
Demystifying Non-Marketable Securities: Understanding Their Role in Investments
Non-marketable securities present a unique aspect of the financial market, offering both challenges and opportunities for investors. Let's delve into the intricacies of non-marketable securities, their characteristics, and the rationale behind their existence.
Unraveling Non-Marketable Securities
Non-marketable securities are assets that pose difficulties in buying or selling due to their absence from major secondary market exchanges. Typically, these securities, often in the form of debt instruments, are traded through private transactions or over-the-counter (OTC) markets. Unlike marketable securities, which enjoy listing on exchanges, non-marketable ones lack this liquidity and ease of trade.
Key Aspects to Remember
Understanding non-marketable securities involves grasping their unique features and implications. Examples include savings bonds, private shares in unlisted companies, and certain derivatives products. While marketable securities like common stock and Treasury bills are readily tradable, non-marketable ones require a different approach, often involving longer holding periods and limited resale options.
Exploring the Purpose
The issuance of non-marketable securities serves specific purposes, often related to ensuring stable ownership and controlled trading environments. Government-issued debt instruments, such as U.S. savings bonds, exemplify this strategy, aiming to maintain stable funding sources and investor confidence. Despite limitations on resale, non-marketable securities provide avenues for investors to accrue gains, albeit through longer-term strategies.
Distinguishing Marketable from Non-Marketable Securities
A fundamental distinction lies in the tradability and valuation of securities. While marketable securities fluctuate in value based on market demand, non-marketable ones lack this dynamic pricing mechanism. Instead, they rely on intrinsic value, determined by factors such as face value or purchase price plus interest. This difference underscores varying risk levels, with marketable securities carrying higher volatility due to market-driven fluctuations.